Frankfurt:Switzerland's central bank said the government and regulators should carry out an in-depth review of rules aimed at preventing disastrous bank collapses, saying key guardrails failed to prevent Credit Suisse from needing to be rescued by Swiss competitor UBS. The Swiss National Bank scrutinised several of the safeguards imposed in the wake of the 2008-2009 global financial crisis that were aimed at preventing a repeat.
The central bank concluded that several too big to fail rules designed to avoid the collapse of a major global bank were inadequate and may even have delayed action to ward off disaster. Looking forward, the experience with Credit Suisse shows the need for a review of the TBTF framework in order to facilitate early intervention, the central bank said in its annual financial stability report published on Thursday.
It is now up to the authorities to carry out an in-depth review and draw lessons, also in view of the higher systemic importance of the combined bank and the associated risks for Switzerland, it said. Credit Suisse had been one of 30 big international banks singled out for tougher scrutiny because of the potential impact of a failure on the global financial system.
The Swiss lender was forced into a government-engineered takeover with UBS after Credit Suisse's stock plunged and customers quickly pulled out their money in March. Authorities feared its collapse could further roil global financial markets after the failure of two US banks. The hastily arranged marriage, which closed last week, has raised questions about the risks of creating an even bigger bank. Both Swiss lawmakers and the Swiss attorney general's office have approved setting up inquiries into the deal worth 3 billion Swiss francs (about USD 3.3 billion) and the events leading up to it.
The central bank noted that Switzerland's existing safeguards were in compliance with the international set of rules painstakingly agreed on after the 2008 collapse of US investment bank Lehman Brothers, but they still didn't stop the Credit Suisse meltdown. The central bank's report questioned standards defining the size of the financial padding that banks need to hold to cover unexpected losses, saying that Credit Suisse was in excess of those safety requirements even as investors and customers lost faith in its ability to deal with its problems and return to consistent profitability.