THE Swiss parliament heavily criticised the previous leadership of Switzerland’s financial regulator Finma in a landmark enquiry into last year’s collapse of Credit Suisse.
Finma’s 2017 decision to grant Credit Suisse relief from capital requirements obscured the true state of the bank and prevented corrective measures from being taken on time, a specially-convened commission said in a report released on Friday (Dec 20). Still, the commission, known as a PUK, handed primary blame for the crisis to the leadership of Credit Suisse over many years.
The Finma move, known as a regulatory filter, was “inappropriate” even though it was legally sound, according to the lawmakers. The concession would later enable Credit Suisse to report a capital level, expressed as CET1 ratio, that continued to exceed the required minimum while the lender was already careening towards its demise.
The regulatory filter helped Credit Suisse “maintain the guise of sufficient capitalisation until the end,” the lawmakers said.
Finma granted the regulatory filter under then-chief executive officer Mark Branson. The Swiss regulator responded to the criticism on Friday, saying that it was working to “strengthen supervision and implement the lessons that we have learnt from the Credit Suisse case.”
The collapse of Credit Suisse last year shook the confidence in Switzerland, long famed for its financial services industry. It happened after years of scandals had undermined the faith of clients, pushing them to withdraw a torrent of money from the lender during the months preceding its demise in early 2023.
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The Swiss government ultimately engineered an emergency takeover of Credit Suisse by UBS Group, saying the move shielded the country and its taxpayers from a potential financial meltdown.
The lawmakers’ 569-page report into the collapse, published on Friday, covered the period from 2015 to June 2023. It also found that the filter decision had not been communicated to Finma’s supervisory board, which at that time included the current president of the regulator, Marlene Amstad.
Branson, 56, now runs the German financial regulator Bafin. He was succeeded at Finma by Urban Angehrn, and then from April this year, by Stefan Walter.
A representative for Bafin did not immediately have a comment.
Handing blame
The lawmakers also said they “regretted” that Finma failed to get Credit Suisse to fully address the many deficiencies it had identified. However, the report did assert that the regulator had done many things correctly over the years and operated with a limited set of options.
“Finma did not do everything wrong,” social-democratic lawmaker Roger Nordmann said at a press conference in Bern.
Indeed, the lawmakers also tackled the government for taking too long to implement changes resulting from the last financial crisis more than a decade ago. One example was the absence of a tool that would have allowed the government to rapidly pump money into a bank.
Switzerland only adopted a so-called public liquidity backstop through emergency law in Credit Suisse’s final days. The question of whether the Swiss National Bank was too restrictive with its provision of liquidity to Credit Suisse during the acute phase of the crisis should also be further investigated, the PUK said.
Finma conducted eight proceedings against Credit Suisse staff during the period under investigation but ultimately shied away from imposing bans on any individuals, the lawmakers said, illustrating how the regulator’s findings did not lead to consequences for perpetrators.
The report clears the way for a new round of legislation aimed at repairing Switzerland’s financial centre.
Significantly, the panel supported equipping Finma with the power to fine systemically-important banks as well as individuals. Switzerland is practically alone among major financial centres in that it does not have the legal basis to hand down punitive fines.
The lawmakers also floated the idea of a ban on bonuses when banks are not making profits.
In parallel, UBS is facing sharply higher capital requirements on the back of pressure from Finma and the Swiss finance ministry, given its new size and increased complexity. The lawmakers made little specific mention of that issue, other than to back the regulator’s general push to make UBS maintain more capital against its foreign subsidiaries.
The government’s own comprehensive set of proposals for changes to financial regulation, presented earlier this year, foresees extended powers for Finma, including a so-called Senior Manager Regime which makes it easier to hold individuals to account.
The PUK findings will now influence the legislation and ordinances that the executive will produce next year. Measures on UBS capital can be implemented by ordinance, meaning they could come into effect without parliamentary approval as soon as 2026.
Legislation enacted in Switzerland after the last global financial crisis led to changes in how the largest banks were regulated, including increases in capital and liquidity requirements at the level of the parent bank. Credit Suisse was granted two relief measures – on valuing subsidiaries as a portfolio instead of a single-entity approach, and a staggered 10-year transition period.
UBS has argued that allowing those filters to run enabled Credit Suisse to maintain an unsustainable business model while continuing to pay out capital to investors. It greeted the lawmakers’ report on Friday, saying it supported most of the recommendations.
“The report confirms that the collapse of Credit Suisse was driven by years of strategic errors, mismanagement and reliance on substantial regulatory concessions,” UBS said in a statement. BLOOMBERG
