Postfinance, Raiffeisen and ZKB’s contingency plans “not suitable”

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If a bank starts to falter, it can have serious consequences for companies, private individuals and savers. Can rent and purchases still be paid? Can companies do business as usual? These are just some of the prominent concerns for the Swiss population regarding the demise of Credit Suisse.

And these concerns do not seem completely unfounded: “The contingency plans of the systematically important banks Postfinance, Raiffeisen and Zürcher Kantonalbank (ZKB) cannot again be considered viable”, writes the Swiss Financial Market Supervisory Authority (Finma). March 27 annual report.

Banks are working on improvements

Contingency plans aim to ensure that a bank can continue to perform its systemically important functions for the Swiss economy, even if there is a threat of bankruptcy. However, Finma writes, “none of the three banks has set aside sufficient capital for emergencies.”

In an emergency, Postfinance can count on the federal government’s capital injection. But the rejected revision of the postal service law caused this money channel to dry up. The bank should therefore develop a new contingency strategy. In ZKB and Raiffeisen, the aim is to close the existing gap by reclassifying ordinary equity Tier 1 capital or issuing surety instruments. These tools are designed to ensure that shareholders and unsecured lenders lose their capital first.

CS would have met the requirements

Finma’s negative assessment is of course no reason to panic. ZKB and the Raiffeisen Group are extremely well positioned. Both banks made high profits of over one billion francs last year. Postfinance is also doing well, although things are not going well. But there is a simple reason: Postfinance, as a state bank, is being deprived of a lucrative business with loans and mortgages. Still, at the end of the day, he had a profit of 190 million francs.

The conclusion of Credit Suisse, which has since been bailed out, shows how complex it is to regulate large banks that are closely networked with each other: According to Finma, CS and UBS fully met the legal requirements of the contingency plan. And also: Two major Swiss banks have also made progress with a view to a possible global solution. But in the troubled Credit Suisse precisely this global transaction was suddenly no longer possible.

Is it a “Too big to fail” that doesn’t start?

If the authorities had initiated the resolution of CS, the consequences for other international financial institutions could have been fatal. For this reason, according to “Bloomberg”, there was great international pressure on Switzerland. Officials around Finance Minister Karin Keller-Sutter, 59, don’t want to know anything about such an impact. And little about the fact that Switzerland’s “too big to fail” rule has failed.

Finma Chairman Marlene Amstad (55) emphasized at the press conference announcing the CS rescue operation that the “too big to fail” rule was not applied due to the extraordinary economic conditions. However, this statement clearly demonstrates the weakness of regulation: A major Swiss financial institution is unlikely to be on the brink of collapse without major global upheavals such as the current crisis affecting US regional banks.

Source :Blick