Finma sounds the alarm: Banks may run out of money in the crisis

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Finma, the Federal Financial Market Supervisory Authority, thinks that there is more disruption to the Swiss financial center than in the previous year. In addition to the previous main risks, Finma identified two new problem areas in the “Risk Monitor 2023”.

These include areas of liquidity and refinancing, as well as outsourcing of business activities, according to the report published on Thursday.

Collapse of Credit Suisse

According to Finma, liquidity and refinancing risk includes the risk that institutions will not have sufficient liquid assets to meet their obligations in the event of a crisis. This problem may be triggered by increased collateral needs, downgrades, or rapid outflows of customer funds.

The latter was considered one of the main reasons for the collapse of Credit Suisse, which was later taken over by UBS. Such a bank run could trigger “a stressful situation leading to an unstoppable decline,” according to Finma.

There is a backlog in outsourcing

Finma sees the second new risk for financial institutions in outsourcing as the outsourcing of business activities. According to the decision, “the transfer of core functions to third parties leads to increased operational risks”.

In extreme cases, disruption of such functions may affect the stability of the financial market. Therefore, it is also the customer’s responsibility to control and monitor service providers to ensure operational functionality.

“Responsibility for proper management is non-delegable and therefore includes outsourcing,” the report says. Finma determined that there was still a certain amount of ground to be made in this area, particularly when it came to “identifying the entire supply chain and associated risks.”

According to Finma, the risks already communicated last year include interest rate risks, mortgage credit risks, other credit risks, credit spread risks, cyber attacks, risks in the anti-money laundering field and more difficult cross-credit risks. access to frontier market.

Control AI usage

Finma also pays attention to artificial intelligence (AI) in the Swiss financial market in this year’s risk monitor. Challenges were identified in the context of AI decisions, reliability of AI applications, transparency and explainability of AI decisions, and equal treatment of customers.

Finma demands that financial institutions “act appropriately to the associated risks.” This should be reviewed appropriately using a risk-based approach and the principle of proportionality, the supervisor writes. (SDA/koh)

Source :Blick