SNB Chairman Thomas Jordan: The eternal shadow of CS’s bankruptcy hangs over a legacy

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The timing of his resignation raises questions. Did Thomas Jordan (61) resign because he feared the consequences of the Parliamentary Inquiry Committee (PUB)? The head of the Swiss National Bank denied: His resignation had nothing to do with the PUK, he told the media on Friday.

According to the information provided by Blick, Thomas Jordan can actually look at the PUK report calmly. He has already been questioned by the special commission. There was no unpleasant conversation when he gave his opinion on the collapse of Credit Suisse. Jordan’s statements are said to be broadly consistent with what he has said publicly about the bank’s decline and his role.

He may have emphasized two points in particular. The emergency sale of Credit Suisse to UBS was successful in restoring financial stability. Thus, the Central Bank fulfilled a central duty of its legal authority. He may also have rejected criticism that he should have made clear to angry markets that he would not allow Credit Suisse to collapse under any circumstances.

Here, too, he may have been referring to the authority of the central bank, which does not allow making promises that cannot be kept. Jordan appears to have persuaded the members by appearing before the PUK. When the report is ready at the end of the year, there should be little incriminating information about the SNB President’s management of the crisis.

Why now of all times?

So why is he resigning now? Why doesn’t he stay until the end of his regular term in 2027? The official explanation is that one crisis followed another throughout the twelve years of his presidency: negative interest rates, the Covid crisis, the Ukraine war and Credit Suisse. That’s why he was never able to leave the command bridge. He is now using the brief window of relative calm to make room for a successor.

This may be true, or only half true. It cannot be ignored that his health also played a role in his decision to resign. He had to undergo heart surgery two years ago. On the other hand, the Central Bank is facing groundbreaking turmoil.

Jordan’s years were marked by the last financial crisis. He was already there when UBS was rescued, but not as a key player; Then-SNB President Jean-Pierre Roth (77) and his deputy Philipp Hildebrand (60) later ascended to the top all the way to Jordan in April 2012. He took over the presidency himself.

In the years that followed, he played an important role in learning the lessons of the first major banking crisis. These were included in the “too big to fail” regime. But last year it turned out that this is completely unsuitable for emergencies. A strengthened equity base has failed to ease Credit Suisse’s teetering fortunes.

CS ultimately collapsed because it had too little liquidity. Because there was a massive influx of digital banks. The Central Bank was unprepared for this emergency. The central bank’s role as a lender of last resort is to provide liquidity to financial institutions when other sources of financing dry up.

But at the critical moment, the necessary funds that went beyond the so-called Emergency Liquidity Assistance support for exceptional circumstances were missing. Tools such as “ELA plus” and “Public Liquidity Support” had to be created in a cloak and dagger exercise using emergency law.

Reprimand from the finance minister

In those dark hours of March 2023, Thomas Jordan was, to put it politely, less than resilient. He insisted on the independence of the SNB in ​​the deepest crisis and had little sense of going beyond narrowly defined legal authority. His stubbornness tested the patience of Finance Minister Karin Keller-Sutter, 60, who later told Parliament: “But we also had to reach an agreement with the National Bank; I cannot put this more diplomatically.”

The next few years will require the adoption of the “too big to fail” regime. This situation brings many new demands to the Central Bank. A largely secret war is already raging. This relates to the question of what kind of collateral banks must deposit in order to receive liquidity from the Central Bank in the event of a crisis. From what we hear from the financial sector, the Federal Reserve is – unsurprisingly – stubborn.

So it makes sense that Thomas Jordan would leave the upcoming major reform of bank regulations to new powers. For example, the “intern” who is expected to replace him is Martin Schlegel (47). The outgoing SNB President will go down in history as an excellent pilot of the Swiss Franc. But his failure to prevent the collapse of Credit Suisse will forever overshadow his legacy.

Source :Blick