The Swiss National Bank (SNB) highlighted persistent weaknesses in Switzerland’s financial regulatory framework following the 2023 collapse of Credit Suisse, emphasizing the need for urgent reforms. The collapse necessitated a state-backed rescue where Credit Suisse was absorbed by its long-time rival UBS, a move driven by concerns that the enlarged entity posed significant systemic risks to the economy. In response, the Swiss government proposed stricter regulations aimed at banks deemed “too big to fail” in April.
Central to these regulatory proposals is the requirement for UBS to maintain higher capital reserves, intended to fortify its financial position and mitigate risks. However, the implementation of these measures faces substantial political hurdles and is expected to undergo a lengthy legislative process.
In its annual financial stability report, the SNB echoed the Federal Council’s stance on the urgency of addressing issues related to capital adequacy, liquidity management, early intervention protocols, and robust recovery and resolution planning. While acknowledging that UBS’s current capitalization is stronger compared to Credit Suisse before the crisis, the SNB cautioned that significant vulnerabilities persist under the current regulatory framework and must be remedied promptly.
Specifically, the SNB endorsed a comprehensive review of the liquidity coverage ratio (LCR), a critical metric that assesses a bank’s capacity to meet its short-term liquidity needs. This recommendation stemmed from the observation that retail deposit outflows during the Credit Suisse crisis exceeded expectations based on the LCR assumptions, underscoring the need for recalibration to enhance the effectiveness of liquidity risk management measures.
Despite the merger of UBS and Credit Suisse, Switzerland’s financial regulator recently asserted that the consolidation did not raise competition concerns. This assessment contradicted recommendations from the country’s antitrust watchdog, which had advocated for closer scrutiny of the transaction’s potential impact on market dynamics.
Looking ahead, the SNB’s call for comprehensive regulatory reforms reflects ongoing efforts to strengthen Switzerland’s financial resilience and safeguard against future crises. As discussions progress, stakeholders will continue to monitor developments closely, anticipating the eventual adoption and implementation of measures aimed at bolstering financial stability and regulatory oversight in the Swiss banking sector.