(15 October 2024 – Switzerland) UBS must enhance its emergency and recovery plans following its acquisition of Credit Suisse to ensure it can be wound down or sold without jeopardising financial stability or relying on taxpayer funds, Switzerland’s financial regulator FINMA announced on Tuesday.
As reported in Reuters, FINMA has temporarily halted its annual approval of UBS’s resolution plans as the bank revises its strategy while integrating Credit Suisse, which it acquired last year.
“Based on the experience of the Credit Suisse crisis, additional options for action are required to further strengthen crisis preparations and resolution planning for systemically important banks,” FINMA stated.
UBS’s government-backed rescue of Credit Suisse rocked Switzerland’s financial system, raising concerns about the nation’s reputation for banking stability. The merger has created a much larger entity, with assets that surpass Switzerland’s annual economic output, intensifying the need for solid contingency plans.
UBS said it had already started refining its emergency plans “in a targeted manner”. The bank added, “As FINMA confirmed in its press release, UBS meets the current requirements to be resolvable in accordance with the preferred restructuring strategy in the event of a crisis.”
However, as regulators work to strengthen the system, UBS faces new challenges in adapting to tougher regulations while managing the complex integration of Credit Suisse. FINMA highlighted that UBS is currently addressing difficulties in aligning its structure and IT systems with Credit Suisse’s through “manual data aggregation.”
This year, the Swiss government introduced “too big to fail” proposals aimed at making banks safer, including increased capital requirements. UBS’s crisis plans will need to adjust to these forthcoming regulations, FINMA stated.
FINMA also emphasised that UBS must revise its plan to protect its Swiss business during a crisis, ensuring continuous operation even in the face of insolvency risks. The Credit Suisse collapse exposed vulnerabilities, particularly around the speed and scale of deposit withdrawals. Liquidity measures should now be “calculated even more conservatively and prepared even more comprehensively,” FINMA added.
Global “resolution” rules, designed to ensure banks have reliable plans for managing a collapse, were questioned after Credit Suisse’s implosion, which required 168 billion francs ($195 billion) in central bank loans to facilitate the rescue, rather than closing the bank.
“As a global systemically important bank, UBS must be capable of being resolved at any time,” FINMA reiterated.
The regulator has repeatedly called for increased authority to supervise banks, following criticism for not doing enough to prevent Credit Suisse’s downfall.