The Swiss Bankers Association (SBA) is open to FINMA having additional powers. At the same time, it gives a clear warning about political overreaction. The course is now being set for the next 20 years.

The Swiss Bankers Association’s (SBA) annual media conference is usually a matter of routine: once most banks have presented their annual results, the association puts a bracket around them.

However, there can be no question of the industry association just going back to business as usual after the Credit Suisse debacle and in light of the favorable business performance of the remaining banks.

Time to Take a Stand

Chairman of the board of directors Marcel Rohner and chief executive officer Roman Studer focused their presentation to the many members of the consumer and industry media on the regulatory reappraisal of Credit Suisse's downfall one year ago.

While the SBA had previously been rather reserved in its comments, it now feels the time has come to take a stand. Rohner and Studer presented four ideas for more effective supervision, better liquidity provision in an emergency and better resolvability of the four systemically important financial institutions.

Concessions to FINMA

Specifically, the SBA is meeting many of the demands of the Swiss Financial Market Supervisory Authority (FINMA).

For example, it supports the supervisory authority’s request for additional disclosure of enforcement actions. This is one element revealed by the FINMA report that had been missing in the many years of «in-fighting» between CS and the supervisory authority, Marcel Rohner noted.

Disclosure of Enforcement Actions

As Rohner states, in Switzerland, «only 5% to 10% of enforcement actions» are disclosed, whereas in other financial centers the figure is «80 percent to 90 percent». «We can see the potential benefits of a measure like this,» the association writes in its position paper.

The SBA also supports the introduction of an appropriate senior manager regime «to supplement the existing provision for guaranteeing irreproachable business conduct.»

Understanding the Resentment

According to Studer, the fact that those responsible for Credit Suisse's downfall «got away with it» rightly caused resentment.

To avoid this in the future, banks should individually name the main people responsible for risk in their business areas at all times. And FINMA should be given the power to withdraw the guarantee on this basis for five or ten years or for life.

Core Issue: Liquidity Supply

The second package of measures supported by the SBA concerns banks’ liquidity supply. As proposed by the Federal Department of Finance’s banking stability expert group, the «universe of assets» that the Swiss National Bank (SNB) accepts from banks in connection with its Emergency Liquidity Assistance (ELA) is to be extended.

Until now, the SNB mainly accepted mortgages. Specifically, SBA representatives talked about extending this universe to include Lombard and corporate loans. The aim is to mitigate hasty bank runs in the modern age.

Costly Adjustments

Rohner stresses that this would involve expensive adjustments for banks.

Balance sheets must be structured in such a way that assets can quickly and easily be placed with the SNB as collateral for liquidity assistance in the event of a liquidity crisis, such as the one that led to the collapse of Credit Suisse. «With complex structures, it also depends on where the assets are geographically located,» explains Marcel Rohner.

Assisted Dying in an Emergency

The SBA also supports the introduction of a public liquidity backstop for systemically important banks as a liquidity measure. According to Rohner and Studer, this instrument guarantees additional liquidity from the Swiss government if one of the four remaining systemically important banks is declared no longer viable by FINMA.

«It must be ensured that the death of a systemically important bank can happen in an orderly manner,» says Studer. Corresponding legal provisions for handling payments under a government liquidity guarantee exist in the EU, US and UK, for example.

Waiting for the PUK Report

The fourth area in which the SBA can envisage improvement measures is cooperation between authorities – both national and international. However, it is waiting for the report from the parliamentary investigation commission before making concrete demands or recommendations.

With its demands in terms of legislation and regulation, the SBA has gone from being on the defensive to being on the offensive. It is important to learn the «right rather than the wrong» lessons from the Credit Suisse case, says Marcel Rohner.

Critical Crossroads

The two SBA officials repeatedly emphasized that the course now needs to be set to ensure the «success of the banking sector over the next twenty years.» The Swiss banking industry is at a «crossroads». It is necessary to «learn the right lessons and avoid the wrong ones.»

There was concern in the votes that Credit Suisse’s demise would be used as an opportunity for an unwanted regulatory overreaction.

Against FINMA’s Power to Impose Fines

On one hand, the SBA rejects FINMA’s request to be able to impose fines in the future. From a global perspective, there is «no more heavily fined bank than Credit Suisse,» says Marcel Rohner. «In this respect, we are skeptical. The fines don’t really seem to have worked.»

What is more, many political figures had their say last spring with their «evergreen» demands, notes the SBA chairman: climate policy demands on the financial sector, equity capital of at least 20% for banks, a general cap on bonuses for the entire Swiss economy...

Economic Risk

There is a «high» risk, according to SBA chairman Marcel Rohner, «of ending up with new regulations that weaken not only banks but the economy as a whole.» What the SBA is now proposing is in line with the Department of Finance’s expert report. «These are the four measures where we have really seen weaknesses.»

The SBA is confident that, if the worst comes to the worst, it will also be able to handle the problem of an even larger UBS. According to Marcel Rohner, UBS itself wants to be able to be wound up in the worst-case scenario. «I also believe that this is possible.» And it «has to work because there is only one [big bank] left.»

Sanctions: Risk-Averse Switzerland

With regards to the Swiss banking industry’s international competitiveness, the two SBA representatives expressed the hope that politicians would address the mainly liquidity-related problems that led to Credit Suisse’s downfall.

The overall aim is to ensure that the Swiss financial industry remains competitive on an international level. This is no easy task in the face of global competitive pressure, with a number of competing financial centers much more willing than Switzerland to take risks in imposing sanctions on Russia.

Cautious New Money Expectations

The SBA has very cautious expectations for cross-border trade, with no massive inflows of new money expected in the near future.

The successful 2023 enjoyed by Swiss banks remained a footnote in the regulatory tsunami of the CS debacle, and the SBA has a Herculean political task ahead. The Q&A session at the media conference mainly revolved around far-reaching demands for regulation and legislation, also showing the intense debate facing Switzerland on banking policy.