Almost five days after the forced merger of the two major Swiss banks, UBS and Credit Suisse, one thing is certain: the hasty agreement will have political consequences. Parliament, which had little say in the spectacular bailout, has an extraordinary session in mid-April in addition to the usual four meetings a year. Because the resentment is great – not least because the Swiss government, the Federal Council, has applied emergency law in several places to push through the takeover of Credit Suisse.
The last time such an intervention in the political participation rights – which are very pronounced in Switzerland – took place during the first Corona wave in 2020. Back then, no one really knew what was threatening. In the case of Credit Suisse, however, one has to say that if politicians and regulators had taken a closer look earlier, such a quick rescue of the country’s second-largest bank would probably not have been necessary.
One of the biggest problems that Switzerland is having to deal with right now: the rules it set itself after the UBS rescue in 2008 to prevent another major bank having to be rescued with taxpayers’ money were not applied at all in the case of Credit Suisse . Actually, the too-big-to-fail legislation stipulates that a bank in crisis like Credit Suisse has to split up in an emergency. This means that the systemically important part – the deposit business, the Swiss lending business and payment transactions – can continue; the remaining areas are being wound up.
But instead of activating this scenario, Switzerland opted for a takeover of Credit Suisse by its competitor, backed by state guarantees amounting to CHF 209 billion. Finance Minister Karin Keller-Sutter justified this on Sunday with the state of the bank: The Swiss emergency plan is intended for banks that can no longer meet their obligations. “But we had a liquidity problem here,” says Keller-Sutter. Only: In view of the massive loss of trust, Credit Suisse would sooner or later have a solvency problem. So why didn’t they proceed according to the politically planned script, but devised a legally shaky rescue plan that now gives Switzerland a megabank that poses even greater risks than the two big banks before it?
It can all happen very quickly all of a sudden
Many suspect political pressure from abroad behind it. As the Financial Times recently reported, the Americans and the French are said to have left the Swiss with practically no choice. A decisive bailout should stem the growing global panic. And the solution that was actually envisaged, i.e. splitting up and liquidation, was seen by all those involved as too risky for the financial markets.
Again, everything happens very quickly in Switzerland when the pressure, especially from the USA, is great enough – as was the case with dormant assets in the 1990s and also with the end of banking secrecy in 2009. Laws that have been discussed for years? In case of doubt, they are simply cleared out of the way by emergency law. Such events are dangerous for Switzerland’s reputation as a safe, stable and, above all, constitutional business location.
This is exactly what the country’s political parties now want to address. The Social Democrats (SP) are even calling for a parliamentary commission of inquiry into the issue. The political camps agree that the too-big-to-fail legislation needs to be revised. SP and Greens are calling for a separate banking system for the future, i.e. the splitting up of large banks into a low-risk commercial bank and an investment bank.
Political demands are also aimed at the bonus problem: While it initially looked as if Credit Suisse would be allowed to pay its employees their bonuses for 2022 as planned, the government partially frozen these payments on Tuesday. The SP now wants to introduce a bonus ban and a wage cap at systemically important banks, the Greens want to strengthen the instruments of supervision in order to be able to hold managers more personally responsible. Representatives of the liberal FDP and the right-wing conservative SVP also want the new giant UBS to release Credit Suisse’s domestic business so that it can continue to exist independently. The politicians want to use it to solve the domestic competition problem.
One thing is certain: life with the new Superbank will not be easy. The first discrepancies between the state and UBS arose in week one. With the loss guarantees that the federal government has given for a clearly defined part of the CS portfolio, it is apparently unclear how far they go. UBS will have to shoulder the first five billion francs, and the federal government the next nine billion – so far, so undisputed. UBS wants to share losses of more than 14 billion with the federal government, but this does not see it as its duty. A power struggle is likely to come to Switzerland with its strengthened bank.