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Mr. Brunetti, shortly after CS was taken over by state-run UBS four weeks ago, you defended yourself against the accusation that regulation too big to fail had accomplished nothing. What do you think about it today?
Aymo Brunetti: The higher capital and liquidity requirements have certainly helped; they made the big banks more resilient. It is unclear whether the second part of the regulation, restructuring and liquidation, will work in a crisis situation.
Isn’t it enough that CS is not declared bankrupt and not liquidated?
I support the assessment that since in the case of CS the final step of a decision has not been taken, we cannot definitively assess whether and how this part of the regulation works. Because there was an alternative that didn’t go that far. Unlike a decade ago, there was a concept for restructuring or liquidation, but people were reluctant to use it – probably because it had never been tested. But from my point of view there is no evidence that the resolution of a globally active bank is fundamentally impossible.
It has not been proven, but it is clear that this is difficult when it comes to different jurisdictions and national regulators, and Swiss Finma, for example, will have to intervene in the United States.
Now it is necessary to analyze it. It cannot be denied that this is difficult, but I do not think that the concept of global solubility should be thrown overboard prematurely. I’m glad that the parliament not only started to regulate, but wanted to analyze some things first. When it comes to the overall regulatory framework, it is important to remember that other elements of crisis management also work.
They believe that CS was not just bailed out with government money, that shareholders and bondholders suffered losses and that CS no longer exists.
Yes, this is a big difference from the bank bailouts in the financial crisis. Within the scope of the TBTF arrangement, additional capital instruments such as AT1 bonds that cover losses in case of crisis were introduced. This is exactly what happened in CS.
How frustrating is it when a concept you’ve been working on for years isn’t used in an emergency?
I would be disappointed if the analysis really revealed that it was not possible to liquidate a bank like UBS globally, even if any adjustments were made to the concept.
Aymo Brunetti has been working as a professor at the Department of Economics at the University of Bern since 2012. Previously, he was Head of the Economic Policy Directorate at the Secretariat of State Economic Affairs (Seco) for nine years. During his time, Federal Councilors Pascal Couchepin, Joseph Deiss, Doris Leuthard and Johann Schneider-Ammann led the responsible economics department. She also collaborated closely with Walter Thurnherr, the Secretary General of the Economics Department under Leuthard.
Brunetti started his career at the University of Basel. There he studied economics under Silvio Borner, receiving his doctorate in 1992 and his habilitation in 1996. He spent a year at Harvard in 1994/95 at the same time as Thomas Jordan, who is now President of the National Bank. He later became vice-president at the University of Saarbrücken, where he worked closely with Christian Keuschnigg. Today He teaches at the University of St. Gallen.
Aymo Brunetti has been working as a professor at the Department of Economics at the University of Bern since 2012. Previously, he was Head of the Economic Policy Directorate at the Secretariat of State Economic Affairs (Seco) for nine years. During his time, Federal Councilors Pascal Couchepin, Joseph Deiss, Doris Leuthard and Johann Schneider-Ammann led the responsible economics department. She also collaborated closely with Walter Thurnherr, the Secretary General of the Economics Department under Leuthard.
Brunetti started his career at the University of Basel. There he studied economics under Silvio Borner, receiving his doctorate in 1992 and his habilitation in 1996. He spent a year at Harvard in 1994/95 at the same time as Thomas Jordan, who is now President of the National Bank. He later became vice-president at the University of Saarbrücken, where he worked closely with Christian Keuschnigg. Today He teaches at the University of St. Gallen.
How likely is such an outcome? And then what?
I’m not making any guesses, people who are closer and deal with it every day should find out. Machinability remains the main target. But if you decide that this is not possible, you have to do things differently and intervene more. Then we can no longer allow systemically important banks globally.
Does this mean that you share the opinion of many MPs that UBS should separate business units like CS Switzerland?
Yes, UBS is advised to dedicate divisions given political pressure, threat of layoffs and competition concerns. But you cannot force them to do so. Because it wasn’t part of the deal.
Doesn’t the Competition Commission have the authority to do this?
In this case, he himself cannot make any direct specifications, but will surely make it clear in a statement that he will see problems with market power. This is also an indication of where to examine any abuse of market power in the future. And here he would have the opportunity to intervene.
And what do you think of the higher capital requirements for UBS?
Higher capital ratios make a bank less likely to collapse. If the bank has above-average unweighted equity, say 10 or 20 percent, confidence in a bank will last longer than if it only has an equity ratio of 5 or 6 percent. However, the danger cannot be completely eliminated. If the bank cannot be split and liquidated, as long as the bank is likely to lose the trust of its customers, there is still a government bailout.
Legal restrictions on variable remuneration in senior management are also proposed in Parliament. How logical and realistic is that?
I understand your frustration and discussion of this is important to financial center acceptance. And if there is an option to reclaim bonuses, I’m totally on your side. But ultimately, the bonus rules are a side show. They probably show little change in the risk behavior of managers. The only thing that helps against the moral hazard problem, in which banks and their financiers are so reckless about risks because of the implied government guarantee, is that the bank will be liquidated in the event of a crisis.
Should Finma act more quickly and intervene more preemptively?
In an international comparison, Finma is not as toothless as some claim. There are quite a few procedures. I doubt whether it will be possible to intervene in the CS case in the fall. Scream would be great. There is little to be said against the fact that offending rulers can more easily atone for it. But like stricter compensation rules, a stricter Finma alone will not solve the fundamental problem.
What do you think of the idea of giving the SNB more authority so that it can intervene more decisively with its approach at all costs and, for example, talk about unlimited liquidity support?
This would be conceptually wrong. Central banks are only responsible for providing liquidity to banks against good collateral. Anything beyond that would be arrogance for the SNB. As soon as it turns to subsidies and taxpayers’ money is affected, it falls to the federal government. An SNB chairman exceeds the authority of a central bank at all costs.
Source :Blick
I’m Tim David and I work as an author for 24 Instant News, covering the Market section. With a Bachelor’s Degree in Journalism, my mission is to provide accurate, timely and insightful news coverage that helps our readers stay informed about the latest trends in the market. My writing style is focused on making complex economic topics easy to understand for everyone.
