No foresight, no understanding, wrong staff: why did the Central Bank fail at Credit Suisse?

Indeed, skimming the National Bank’s most recent publication, the 46-page Financial Stability Report, gives the impression that the best financial watchers have not put Credit Suisse’s problems on their radar. The report, published on Thursday, briefly states: “The cause of the Credit Suisse crisis was not a macroeconomic shock, as believed in the stress scenarios of the SNB.”

The fact that the bank could fail due to a deep crisis of confidence was clearly beyond SNB’s imagination. Supervisors have kept track of key figures such as equity ratio and liquidity, which until recently were evergreen. In retrospect, the SNB was surprised to find that compliance with capital adequacy requirements was necessary, but “not sufficient to guarantee confidence in a bank.”

Inspectors were passive

The report precisely analyzes how the bank lost revenue first, then market and customer confidence, and ultimately led the bank to take the offensive. But when the drama began almost a year ago, the Central Bank remained passive. SNB Chairman Thomas Jordan and his deputy Martin Schlegel did nothing to assist CS early in the event of an impending liquidity problem. Even in October, when customers were already making large-scale withdrawals, the auditors remained passive.

When the crisis escalated greatly in mid-March, the Central Bank was completely unprepared. The legal framework for massive liquidity support had to be introduced by the so-called public liquidity stop, emergency law. Had Thomas Jordan and Martin Schlegel anticipated the crisis of confidence, they could have worked out the appropriate instruments months in advance with the federal government.

Hildebrand – architect of the rescue

“The SNB should have responded by October 2022 at the latest,” says Geiger, professor of banking. But the central bank governor “obviously doesn’t know about the banking business,” he says. Geiger was convinced: “This wouldn’t have happened if it had been Philip Hildebrand.”

He was on the SNB’s Board of Directors from 2002 to 2012, serving the last two years as Chairman before he was forced to resign. From 2007 to 2009 he headed the so-called II Department responsible for financial stability. So then he was in the same role as Martin Schlegel is today.

Hildebrand, who currently works at Blackrock, is credited as the architect of the 2008 UBS rescue. On his own initiative, he gathered key people and prepared in secret meetings the rescue of the big bank. Hildebrand and Daniel Zuberbühler, then head of the Banking Commission, met in various places to keep the planned bailout a secret, including at the USB.

“We are here forever”

When Lehman Brothers collapsed on September 15, 2008, the crisis group was ready and put on the table a plan that would save the big bank from certain collapse. SNB purchased over CHF 30 billion of illiquid mortgage securities from UBS. When SNB President Jean-Pierre Roth appeared before the media on October 16, 2008 and announced the bailout, he had these legendary words: “We are here forever.” Roth’s words had the weight they needed to regain trust.

No word of reassurance came from Thomas Jordan. Is it the lack of foresight needed in times of crisis? A lack of understanding of the banking business as Geiger said? Jordan is an excellent monetary theorist who can play with monetary policy tools like a virtuoso. As a central banker, he is also responsible for financial stability, where a deep understanding of financial markets and their players is important. He failed in this discipline.

Philipp Hildebrand worked at three different financial institutions before being brought to the National Bank by Bruno Gehrig, who is also a central banker with practical experience. Monetary theorist and professor Thomas Jordan has never worked in a bank. He and his deputy, Schlegel, came straight from university to the National Bank and had never seen anything else before. Jordan has been with SNB for 26 years and Schlegel for 20 years.

There is currently a vacancy in the Central Bank Board of Directors. Andréa Maechler’s successor is still open. According to Geiger, it would be an advantage if a candidate had practical experience in banking. “Why not Zeno Staub, Vontobel’s longtime CEO?” Even if he wanted to go into politics, he could be the perfect backup. “Or I’m thinking of Alain Berset,” says Geiger. These are people who can fix problems and aren’t afraid to pick up the phone.

* Journalist Beat Schmid writes about finances in the Sunday newspaper Blick. Tippinpoint.ch is the publisher of the online media.