Switzerland’s finance minister, Karin Keller-Sutter, says the global regulatory framework for “too big to fail” banks does not work. She told Swiss newspaper NZZ that emergency protocols at the core of the architecture would have triggered an international financial crisis had they been followed after a major bank got into difficulties. While buffers and risk rules help at times of stress, plans to rescue or wind down large banks are inadequate in a real crisis, Keller-Sutter said.”Personally I have come to the conclusion . . . that a globally active systemically important bank cannot simply be wound up according to the ‘too big to fail’ plan,” she added. The finance minister, who took her post in December 2018, was at the centre of the negotiations surrounding the rescue of Credit Suisse at the weekend. The bank was taken over by UBS after its smaller rival experienced liquidity problems.
There has been criticism of the rescue plan and the decision by Swiss regulators to wipe out SFr16bn ($16bn) of Credit Suisse’s subordinated debt while preserving some value for equity holders. Bondholders are threatening to take Swiss authorities to court over the issue. Keller-Sutter said the takeover by UBS was the only viable option and the government did what it could to facilitate the deal while reducing the burden on taxpayers. The merger has seen three-quarters of Swiss people surveyed expressing support for legislation to break up the new entity.
This story lends credence to the argument that the next banking crisis will emanate from another poorly-regulated part of the banking industry, prompting governments to once again look at the ways in which banks can be closed or slimmed down. One alternative would be the creation of safe havens to park big banks’ bad assets if they get into difficulties, according to Bloomberg.