Billions instantly untied from the Central Bank are a privilege of the big banks

class=”sc-3778e872-0 gWjAEa”>

In 2008, after the bailout of UBS, Christoph Blocher (82) struggled to divide large banks in such a way that individual sections could sink. Oswald Grübel (79) ran both UBS and Credit Suisse. Jean-Pierre Danthine (72) was a member of the Board of the Swiss National Bank from 2010 to 2015.

All three have one thing in common: in an interview with SonntagsBlick, they do not want to disclose the fact that the SNB has to provide CS 50 billion francs as state aid – but the big bank has the necessary liquidity in the free market. would not have fulfilled its obligations.

“What we saw this week was not a state bailout,” Danthine says. The National Bank only provided additional liquidity to CS and received collateral in return. “This is completely normal for a central bank,” said Thomas Jordan, 60, former SNB Chairman.

Grübel also sees the action as nothing out of the ordinary: “The SNB is just doing its job: stabilizing the Swiss financial system.”

If there is no liquidity, you are history.

Blocher also points out that the SNB takes securities and mortgages as collateral for its cash injection. It even gives hope for a happy ending: “One day CS will have to repay these loans including interest”.

On a purely official level, the authorities may be right. The instinctive feeling of the population will likely be different. Because especially those who are self-employed or who run SMEs know: I need to keep my finances under control and be liquid. Or I’ll be history.

This also applies to small, independent regional banks such as Spar- und Leihkasse Wynigen. Although the financial institution in Emmental has only 6.9 full-time positions, it has been in existence since 1929. This is not as tall as CS, whose roots date back to 1856. On the other hand, the mini bank has a significantly higher equity ratio than the large bank and therefore provides a more comfortable buffer in case problems arise.

Equity ratio as «life insurance»

“We have an equity ratio of twelve percent,” bank manager Erich Pfister (49) tells Sunday Blick. “Compared to other regional banks, that’s a lot – and even a lot compared to the big banks.” In fact: CS has an equity ratio of 5.4 percent, while UBS has a 4.4 percent.

Pfister describes his bank’s high equity ratio as “life insurance.” Because he knows: “If we get in trouble, we can’t rely on the Central Bank to help us. Unlike CS, we are not systematically important.”

Is the billions that the SNB instantly settles a prerogative of the big banks?

Greater equity as volunteers

The SNB does not want to comment on this. Danthine, former deputy chief executive, says: “I wouldn’t rule out that a small regional bank would also get help from the SNB in ​​such a liquidity bottleneck – provided the bank has the solvency.” However, in such a situation it is more likely that the authorities plan to be taken over by a larger bank.

Bern-based economics professor Aymo Brunetti (60), one of the fathers of the “Too Big to Bat” framework, also confirms that not everyone is equal before the SNB: “The SNB can only provide emergency liquidity assistance to the systemically important banks owned by Finma. Certified solvency.» According to Brunetti, this would give the big banks an additional tool. In return, however, they would have to meet higher capital and liquidity requirements than their smaller competitors.

That’s it for theory. In practice, however, small institutions often have significantly more equity than large banks. “This is not new,” confirms former national banker Danthine. “Big banks are going to the limit more when it comes to equity ratio.”

Danthine cannot say with certainty what the reasons for this are. He suspects a link to the fact that large banks feel more pressure from the markets to generate higher returns.

“Large banks have an implied government guarantee”

However, representatives of small banks offer another explanation for the willingness of large banks to take more risks: “This is probably also related to the implied government guarantee that the big banks continue to take advantage of.” This statement comes from an industry that does not want to read its name in the newspaper due to the tense situation. According to him, it is clear: “Systemically important banks benefit from the distortion of competition.” Disruption of competition in the financial sector has a long tradition: most cantonal banks have an unlimited government guarantee. In the event of bankruptcy, the canton that owns the canton will be liable for all outstanding debts, including savings of customers.

Unlike large banks, cantonal banks pay a lot of money each year for government guarantees. In 2021 alone, 24 cantonal banks paid approximately CHF 1.7 billion in compensation to the cantons. “Compensation for state guarantees and statutory profit transfers accounted for the largest share at CHF 1.04 billion,” the Swiss Cantonal Banks Association said upon request.

SNB financial injection probably not enough

Large banks are exempt from such obligations. But now the pressure is mounting for that to change. Yesterday, “Tages-Anzeiger” demanded in its editorial: “This free culture must end.” The newspaper advocates financial compensation for the de facto government guarantee, similar to loan interest. “This instantly changes the business practices of systemically important banks, in other words: they take less risk.”

In CS, it may also be too late to change the risk culture underlying the current crisis, keywords archegos and greensill. It is becoming increasingly clear that the SNB’s injection of cash was not enough to restore confidence in the big bank. In this respect at least, Blocher, Grübel and Danthine are absolutely right when they say we haven’t had a CS recovery this week.

Source :Blick