via notayesmanseconomics:
We are now only a few days away from the anniversary of the takeover of Credit Suisse by my old employer Union Bank of Switzerland. One perspective on that is how time flies but there were always going to be concerns. For example how would a relatively small country like Switzerland cope with having a new mega bank? Plus there was the issue of us for so long being told that big banks were systematically threatening and then the Swiss deciding to make their biggest even bigger. After all we had been told by the ECB in October 2020 that it was now safe to go into the banking water.
Overall, our results provide suggestive evidence that the post-crisis reforms have effectively limited excessive risk taking and reduced funding cost subsidies for G-SIBs
Oh and for those unaware Globally Systemic or G-SIBs was the replacement for the nasty sounding Too Big to Fail.
This morning we see that the OECD wants to make a point about this.
ZURICH, March 14 (Reuters) – UBS’s (UBSG.S), opens new tab rescue takeover of Credit Suisse a year ago has created “new risks and challenges” for the Swiss economy, the Organisation for Economic Cooperation and Development said on Thursday, the latest international forum to raise concerns about the deal.
That is interesting language for a body like that although really it is only stating the obvious. It is hard not to have a wry smile at the mention of domestic dominance as its balance sheet is bigger than the country.
The acquisition may have safeguarded financial stability, but also raises questions about UBS’s domestic dominance, and the need for stronger financial regulation in future, the OECD said in its economic review of Switzerland.
Have you spotted how the stronger financial regulation of now as claimed by the ECB above has morphed into stronger financial regulation in the future? For newer readers it is always like that. Everything is fine until that can no longer be possibly claimed at which point the same group of failures claim to have a new cunning plan.
The biggest bank merger since the global financial crisis, orchestrated by the Swiss state to avert Credit Suisse’s collapse, created a group whose assets dwarf the economic output of the country.
As you can see it will have to be a big one. So big they use an old phrase to describe it.
“UBS – already a global systemically important bank before the merger – has thus become even larger and according to the ‘too big to fail’ (TBTF) regulations, it must meet even stricter regulatory requirements,” it added.
Indeed were the subject matter not so serious this would be really rather funny.
ZURICH, Feb 29 (Reuters) – Switzerland’s competition commission favours a deeper investigation into UBS’ (UBSG.S), opens new tab dominance of certain parts of the market after it rescued Credit Suisse last year, a source with knowledge of the matter said.
So the Swiss stare is warning about a situation created by the er Swiss state.
Financial Stability Board
This also chimed in on the 29th of February.
This 2023 FSB Peer Review of Switzerland assesses Switzerland’s implementation of too-big-to-fail (TBTF) reforms for global systemically important banks (G-SIBs), focusing on reforms to enhance the intensity and effectiveness of supervisory oversight; prudential measures; and the resolution regime.
Well the supervisory insight did not go so well as Credit Suisse collapsed! Back on the 20th March last year I pointed out the official claim that it was those nasty financial terrorists again.
“On (last) Monday everything was still quiet in Switzerland, only on Tuesday and Wednesday morning there was a dramatic, downward spiraling deterioration.”
Those were the words of the then head of the Swiss National Bank Thomas Jordan. By contrast we on here had been discussing the fall in the share price of Credit Suisse for some months. There was plainly a problem which should have been easy to fix after all the shares were now very cheap. Why were there no big buyers?
In fact it is hard to believe the FSB report was written only a couple of weeks ago as this bit could be in the financial equivalent of The Outer Limits.
The review finds that, since the issuance by the FSB of the Key Attributes of Effective Resolution Regimes for Financial Institutions in 2011, the Swiss authorities have made important strides , toward implementing an effective TBTF regime for G-SIBs
They had 2 G-SIBs and one collapsed is apparently “important strides.” The emphasis below is mine.
These steps are particularly important following the merger of the two Swiss G-SIBs into an even bigger G-SIB that will be the world’s largest as a percentage of home jurisdiction Gross Domestic Product (GDP) and whose failure could have severe impact on the Swiss economy and the global financial system.
If we look at what the FSB suggests I find something which is hard to find anywhere else.
Recommendation 1: FINMA’s resources should be increased to be able to effectively manage the supervision, recovery and resolution planning, and resolvability of the remaining G-SIB.
The Swiss banking regulator FINMIA could hardly have failed much more and yet we see a classic bureaucratic response. Here a clear bureaucratic and regulatory failure will apparently be solved by more of both. Indeed they cannot see beyond this.
(i) introducing a Senior Managers regime in order to more easily take action against individual managers who fail their duties;
Even more bureaucracy as we see promotion to Senior Manager for some again ignoring the abject failures seen. This ignores the reality of the “regulatory capture” we have discussed many times over the years where the banks ( or bank in this case as there is only one left) take over the supervisor.
Swiss National Bank
More than a few may be concerned by this.
The Chairman of the Swiss National Bank’s Governing Board, Thomas Jordan, has informed
the Bank Council that he will step down from his position at the end of September 2024.
Is it a case of rats leaving a sinking ship? After all his period of tenure has seen more than its faor share of disasters.
At the beginning of 2015, with the discontinuation of the minimum exchange rate of the Swiss franc against the euro
This led to one of the factors that crippled Credit Suisse as the SNB dived into the icy coild world of negative interest-rates ( -0.75%). Plus the foreign exchange intervention led to massive holdings of other countries bonds and equities. The central bank has put Swiss taxpayers at risk via the way it has become a hedge fund.
The Swiss National Bank reports a loss of CHF 3.2 billion for 2023 (2022: loss of CHF 132.5 billion).
At the moment the equity position will be better via the all-time highs for many stock markets. But the phase of higher interest-rates will not be any good for the large bond holdings.
Comment
The saddest part of this is that the official process precludes the ability to learn from mistakes made so we can actually do better next time. After all we were told that higher levels of capital for banks were a triumph. Whereas we have learnt over time that whilst it may be a nice to have in a real crisis it is never enough and in fact if you think more logically can never be so. To have enough would make a bank unviable and unworkable
We can look at this another way as I pointed out on the 20th March last year.
Over the past decade I have regularly warned about the dangers of low and indeed negative interest-rates and bond yields. That was met by a barrage of official rhetoric that this time is different along the lines of the ECB paper I quoted from earlier. Now we see that not only do leopards not change their spots but the bank which has collapsed comes from the country which imposed a -0.75% interest-rate for some years.
Then the same crew that imposed ZIRP and indeed NIRP rushed to raise interest-rates in a Transitory panic thus collapsing the markets they had forced the likes of Credit Suisse into. I can take that further because the Chair of the FSB the international regulator is none other than the Governor of the Bank of Italy Fabio Panetta who wants to clear the decks for even lower negative interest-rates ( -3%) via the use of central bank digital coins. Just like Alice we find ourselves in Wonderland.
Cheshire Cat : Of course, he’s mad, too.
Alice : But I don’t want to go among mad people.
Cheshire Cat : Oh, you can’t help that. Most everyone’s mad here.
[laughs maniacally; starts to disappear]
Cheshire Cat : You may have noticed that I’m not all there myself.