“This big bank is a clustering risk to society”

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With the acquisition of CS, UBS will become a giant and thus a new risk in the Swiss financial centre. With CHF 1,548 billion, the “new” UBS’ balance sheet total is twice the total economic output of Switzerland. The second largest bank, Raiffeisen has total assets of only CHF 280 billion.

What if the “superbank” UBS gets into trouble in the future? This question is currently dragging party leaders from left to right. After all, after the bailout of UBS in 2008, the Confederation and the Federal Reserve had to help a major bank for the second time last Sunday.

“Big banks take too much risk”

Marc Chesney (62), a professor of finance at the University of Zurich, criticizes the size of UBS. “The bank is huge and creates clustering risks for the economy and society. It needs smaller banks that aren’t ‘too big to fail.’ Other companies can go bankrupt if they make the wrong decisions. “The big banks that are systematically important are basically bailed out, and so they have an incentive to take very high risks,” says Chesney.

With a three-billion-franc takeover, UBS is taking risks home in addition to well-established areas like the Swiss CS business. Among other things, with ongoing legal disputes. If these risks become an issue, the federal government steps in. He gave 9 billion CHF guarantee to UBS.

Stronger editing as a solution?

For Chesney, it’s clear that politics has done little in the past 15 years. “Credit Suisse wouldn’t have sunk now if regulations had been increased enough.”

Andreas Dietrich, 45, a professor of finance at the Lucerne University of Applied Sciences, relents: “I don’t know if you can fix every crisis in the banking sector.” After the 2008 financial crisis, the responsible authorities implemented a series of improvements to make the big banks more resilient to the crisis. Since then, major systemically important banks have had to meet stricter equity ratio requirements.

Superbank weakens competition

According to Dietrich, Credit Suisse’s problem was not equity but loss of customer trust. “It has turned into an unstoppable fire. A higher equity ratio provides greater security. But such an event could still happen.”

In addition to risk concentration, Superbank UBS is currently gaining strength in the domestic market. “This limits competition,” says Marc Chesney. With customer deposits exceeding 330 billion francs and loan volume exceeding 300 billion francs, the big bank Raiffeisen is far ahead of Switzerland.

Will mortgage and corporate customers pay more in the future?

Andreas Dietrich also expects the competition to subside. For example, in the mortgage business. “However, it largely depends on the region.” In the canton of Geneva, one mortgage per second is currently issued by UBS or CS. “This will lead to massive market power in UBS in the future.” The result can be higher margins. However, in other regions the market share is in the low double-digit percentage range and therefore not a problem.

Larger companies are also likely to feel the loss of CS: Until now, UBS and CS in particular have been offering services in this area, competing somewhat with Zürcher Kantonalbank and Banque Cantonale Vaudoise. “It’s always been important for big companies to have two big banks,” Dietrich says. As a result, companies have always been able to negotiate terms with at least two banks.

Source :Blick