Big Swiss Banks’ Collapse No Longer Threat to Economy

New FINMA Report

                Swiss financial regulator, Financial Market Supervisory Authority (FINMA), published new statement after its annual assessment of big financial institutions in the country. So far, they were considered to be “too big to fail”, and in case of their collapse a seismic shift in the country’s economy was feared. These institutions are UBS, Credit Suisse, ZKB – a bank of canton Zurich, Raiffeisen, Postfinance, and part of exchange operator SIX. Each of them represents traditional banking, as opposed to new fintech sector with lots of start-ups. FINMA claims now all of them have more or less credible resolution strategies for possible meltdown. FINMA gives its verdict on this every year.

First Time Ever

                This year for the first time three domestic banks, focused mostly on loans to individuals, businesses and real estate owners while also providing current and saving bank accounts’ offering – Postfinace, ZKB, and Raiffeisen have a credible resolution strategy. However, still further work is required from them to build protection measures in case crisis losses are observed. FINMA calls for Postfinance, that might be soon privatized as the federal government wants, to create an alternative strategy.

UBS and Credit Suisse’s Strategies Are Effective

                Meanwhile so-called G-SIBs – global banks UBS and Credit Suisse, have both effective emergency plans. However, UBS’s approval is dependent on whether the Swiss bank continues to unwind business units from collateral damage due to other areas of bank’s activity as agreed in a schedule with FINMA. No further details on that were given. “The large banks were also able to achieve further progress in their global resolvability, by building up the necessary capabilities or removing obstacles to the implementation of the resolution strategy,” FINMA stated. UBS and Credit Suisse are huge institutions that matter globally, so FINMA required more effort from them. Anyway, the process to build good emergency strategy is in both entities more or less on track.

SIX Did Worse

                A bit worse turned out to be the assessment of SIX’s situation. The entity is relevant to traditional financial market infrastructure, but also to fintech, modern financing as it develops platform for trades in cryptocurrency pegged to Swiss franc exchange rate. SIX missed FINMA’s high requirements for approval, but its securities trading and depositary facilities have improved since 2019. FINMA proposed resolution strategy for SIX’s Xclrear, a main counterparty, including temporarily carrying on with system-critical functions during liquidation.

Potential Crisis

                These banks and the exchange operator are vital for Swiss economy, having lots of links to it, and employing large workforce. Bankruptcy of any of them would cause enormous crisis. That is why after the financial crisis of 2007/08 the Swiss regulator has ordered them to adapt their business to potential situation of collapsing and come up with credible resolution strategy. Before the financial crisis struck, it was understood they have some safety devices that would save them from sinking – that’s why they were deemed “too big to fail”. However, it turned out that is not the case, hence FINMA’s requirement to increase capital reserves to absorb potential losses, reorganize corporate structure so it can protect units from being teared down by crisis in other areas etc.