SNB Governor draws lessons from CS bailout: Jordan urges banks to better prepare for crises

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The extraordinary liquidity support given to Credit Suisse during the crisis should not become a regular monetary policy tool for the SNB, SNB Governor Thomas Jordan said at an event on Wednesday.

In his opening remarks at the “SNB and its Supervisors” conference in Bern, Jordan said Credit Suisse had not prepared enough collateral to be sent to the SNB to receive extraordinary liquidity support on a large scale. The CS case also showed by example that customer deposits can now flow out much more quickly and extensively than assumed under previous arrangements.

In March, the SNB provided CS with liquidity assistance ELA+ (Emergency Liquidity Assistance”) based on the Federal Council’s emergency regulation. CS was not required to provide any collateral for these loans; only the SNB had bankruptcy privileges. classic liquidity assistance (ELA) ) and loans guaranteed by the federal government (Public Liquidity Backstop PLB) According to Jordan, the SNB provided 168 billion francs to Credit Suisse at its peak.

The SNB Governor drew lessons for the future: “Firstly, liquidity regulation must be adjusted to the new reality where deposit outflows are potentially faster and larger.” Secondly, it is extremely important for the future that banks prepare sufficient collateral for transfers to the SNB and other central banks.

Third, an effective PLB is needed that allows the SNB to lend liquidity to distressed banks that lack sufficient collateral. PLB stands for Public Liquidity Support and is another loan from the SNB but for which the federal government is responsible.

“This approach corresponds to the established division of roles between the federal government and the central bank in a banking crisis. In his speech, Jordan said that ELA+ should not become part of the SNB’s normal tools.

The SNB’s willingness and ability to provide liquidity was vital in overcoming the severe crisis at Credit Suisse and thus averting a financial crisis that would have had major economic consequences for Switzerland and the rest of the world. But Jordan says: “Even in the event of an acute crisis, the Central Bank must comply with the legal framework and the distribution of roles of officials envisaged therein.”

In his speech, Jordan did not address the allegations that emerged after the rescue of the CS that the SNB should have intervened earlier. He simply emphasized: “There are legal limits to the scope of action of the Central Bank in the field of financial stability. Other duties that are also important for the stability of the financial system fall within the jurisdiction of other authorities.” (SDA)

Source :Blick