Swiss National Bank Says Credit Suisse Crisis Revealed Regulations’ Shortcomings

The Swiss National Bank has called for a review of “too big to fail” (TBTF) regulations after the crisis around Credit Suisse in March.

While measures taken by authorities and the acquisition of the bank by UBS stabilized the situation, the crisis highlighted a need for new measures to strengthen banks’ resilience, bolster confidence in banks and provide a wide range of options for dealing with banks in crisis, the Swiss National Bank said in its Financial Stability Report 2023 released Thursday (June 22).

“Although Credit Suisse met the regulatory capital and liquidity requirements, it became increasingly unlikely that the bank would be able to stabilize its situation through its own efforts,” Swiss National Bank said in the report.

Credit Suisse saw its shares shed a quarter of their value in March and was forced to seek a $54 billion central bank loan that did little to restore investor confidence.

After nine days of unease around the banking sector, Swiss banking giant UBS acquired its struggling rival in a $3 billion government-supported deal to restore confidence in the financial system.

The Swiss National Bank’s report published Thursday found that the crisis at the bank showed that compliance with capital requirements is not sufficient to ensure clients, market participants and rating agencies retain confidence in a bank.

It also showed that additional tier 1 (AT1) instruments played an important role at a late stage in the crisis but did not do so earlier, although they had been designed for that purpose, the report said.

A third shortcoming of current rules was that the current liquidity regulations were not sufficient for the scale and pace of the unprecedented deposit outflows that occurred at Credit Suisse, per the report.

“Looking forward, the experience with Credit Suisse shows the need for a review of the TBTF framework in order to facilitate early intervention,” the Swiss National Bank said in the report. “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.”