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In the new year, the Parliamentary Investigative Committee’s (PUK) investigation into the collapse of Credit Suisse will gain momentum. It aims to investigate how cooperation between the Financial Supervisory Authority (Finma), the Swiss National Bank (SNB) and the federal government went during the CS crisis. Observers do not rule out that the PUK may ultimately demand personnel consequences. There is therefore great nervousness among those involved.
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This article was first published in the paid service of Handelszeitung.ch. Blick+ users have exclusive access as part of their subscription. You can find more exciting articles at www.handelszeitung.ch.
Against this background, experts in the field of banking supervision notice how supervisor Finma and the SNB in particular express their criticism more or less secretly in interviews and statements. The clearest salvo comes from the central bank.
The SNB points to Finma
An article in the “Sonntagszeitung” of December 17 is about the accusation whether the SNB should not have provided CS with liquidity earlier and more powerfully to avert the crisis. According to the report, Finma warned the SNB as early as the autumn of 2021 that the criteria under which the central bank provides loans to an ailing bank were too restrictive.
When asked about this, the SNB emphasized in the report that “Credit Suisse had by no means exhausted the potential for liquidity support available from the National Bank and other central banks with its preparations.” The supervisor is also responsible for this: “A bank’s liquidity planning in the event of a crisis is monitored by Finma and not by the SNB.”
Such blatant criticism of Finma by the central bank is very unusual, says a Finma insider. An SNB observer, on the other hand, believes that a reference to respective responsibilities does not constitute an attack.
The CS had not yet exhausted its options
SNB board member Martin Schlegel had already pointed out the issue of the lack of liquidity planning during a lecture on November 9, 2023 in Basel. In it he explained the concept of the ‘lender of last resort’, that is, the role of the central bank as a lender in a crisis to stabilize banks. Accordingly, the central bank only makes loans to a bank if the institution can provide sufficient collateral.
“Credit Suisse had not prepared all the eligible collateral for transfer to the National Bank or other central banks,” Schlegel said, according to the speech manuscript, which can be viewed on the SNB website. To avoid a crash, it was then necessary for the central bank to provide the ELA+ liquidity support created under the emergency law; However, these loans are only insured with the bankruptcy privilege and therefore represent a taboo break.
So was this fall from grace necessary because Finma had not done its job in advance and had not ensured that CS had all available securities ready to submit as collateral?
Finma President Marlene Amstad has so far refrained from a frontal attack on the SNB. But the authorities resisted. In the December Finma report on tackling the CS crisis, it discreetly shifts responsibility back to the central bank: according to this report, SNB representatives have been at the daily meetings with the responsible authorities since October 2022 – that is, after the first huge wave of CS outflow there. “Further expectations and requirements for CS’s liquidity risk management were also discussed,” Finma writes. In other words, if the SNB had a problem with the collateral held by CS, it would have had ample opportunity to raise the issue during the daily briefings.
Every institution only looks after itself
Finma and the SNB clearly do not have the same interests in this matter. The fact that Finma apparently does not consider the collaboration with the SNB to be optimal is also evident from the interviews given by Finma president Amstad. Because she always refused to make a clear statement on the subject. Instead, she pointed out that it is now the PUK’s job to “evaluate cooperation between the authorities”, as she put it, for example, in “Switzerland at the weekend” at the end of December.
On the other hand, the committee of experts appointed by the federal government has a very clear opinion: the interaction between the federal government, the SNB and Finma must be improved. The crisis cooperation between the three parties, organized in a Memorandum of Understanding, is “worryingly uninstitutionalized”. The three players are not required to coordinate their autonomous decisions. There is a lack of shared responsibility.
Because the SNB cannot be forced to give money to banks in crisis, the central bank has a de facto veto on this issue. A reform consideration is therefore whether Finma should be given the right to issue instructions to the central bank regarding emergency liquidity – which would undermine the SNB’s independence. Even Finma doesn’t want to go that far in her demands. When it comes to the CS crisis, not only Finma, but also the SNB will have to answer some unpleasant questions from the PUK.
Finma and the SNB did not want to comment on the subject.
More on this subject in the commentary in the “Handelszeitung”: Finma itself needs reforms.
Source:Blick
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