Swiss gov’t eyes tougher rules for UBS after Credit Suisse rescue

GENEVA, Switzerland — The Swiss government said Wednesday that it aimed to tighten regulations surrounding “too-big-to-fail” banks such as UBS, after last year’s rescue of its competitor, Credit Suisse, revealed the towering risks they pose.

UBS, Switzerland’s largest bank, was strong-armed by Swiss authorities in March last year into a $3.25-billion takeover of Credit Suisse, to keep its closest domestic rival from going under.

The maneuver “succeeded in safeguarding financial stability and preventing damage to the economy and the taxpayer”, the government said in a statement Wednesday.

But it also created a behemoth with a balance sheet twice the size of Switzerland’s annual economic output, causing significant jitters.

READ: UBS rescue of Credit Suisse created new risks for Switzerland – OECD

If UBS were ever to land in deep trouble, finding a similar solution “would not be possible”, Finance Minister Karine Keller-Sutter told a news conference.

Following the drama, the government launched a large-scale evaluation of the regulations for banks like UBS and Credit Suisse that were deemed too big to fail due to their importance to global banking architecture.

In the findings revealed Wednesday, it said it had discovered “gaps”, which “revealed that the existing too-big-to-fail regime must be developed further and strengthened, to reduce the risks to the economy, the state, and the taxpayer”.

A package of 22 measures

In a 209-page report, the government pitched a package of 22 measures for direct implementation, aimed at “strengthening and further developing the too-big-to-fail regime”, while it said seven other measures would be examined further.

“Implementation of the package should significantly reduce the likelihood that another systemically important bank in Switzerland will experience a severe crisis and that emergency measures by the state will be necessary,” it said.

READ: IMF urges tighter Swiss financial sector regulation

The proposed measures were particularly targeted at UBS, which is the sole remaining global systematically important bank in Switzerland, the government said.

The measures were divided into three focus areas: strengthening prevention, strengthening liquidity, and “expanding the crisis toolkit”.

Among other things, the government called for tightening capital requirements for important banks, in a bid to strengthen their capital base and improve resolvability.

“In a crisis, systematically important banks must be able to exit the market in an orderly manner,” it said.

It also suggested giving Swiss regulator FINMA extra powers to impose good corporate governance and more accountable risk management by systematically important banks, including rules on manager responsibilities and bonuses.

Last month, the IMF urged Switzerland to strengthen its financial sector regulation as supervising UBS has become “more challenging” since it absorbed Credit Suisse.