It was an impressive snap action: On March 19, the Swiss government orchestrated the takeover of the badly hit major bank Credit Suisse by its rival UBS. The deal, which came about mainly under pressure from the government, is being supported with several hundred billion francs from the public sector: in addition to the 50 billion in liquidity support from the Swiss National Bank (SNB) – an emergency instrument to which all banks have access – Credit Suisse and UBS received CHF 100 billion in additional liquidity support from the SNB.
In addition, there is a further 100 billion in liquidity assistance, this time secured by the federal government, and a state loss guarantee of a maximum of nine billion for a certain part of the Credit Suisse portfolio. Makes a total of 259 billion francs – a huge sum that the newly strengthened UBS in particular likes to forget when it boasts of having saved the Swiss financial center with the historic merger.
The parliamentarians send out a signal
Now the 109 billion, which the Swiss state directly secures, are an issue in Parliament. The commitment credits have already been approved in a legally binding manner, since the government presented them to the parliamentary finance delegation on that memorable Sunday. Nevertheless, the parliament should decide about it afterwards – which is why it met on Tuesday for an extraordinary session lasting several days in Bern.
The large chamber, the National Council, and the small chamber, the Council of States, alternately advise on the business. After the Council of States had approved the loans in a first step on Tuesday afternoon, the National Council voted in the evening – and gave the government a lesson just before midnight: With 102 to 71 votes, he said no to the 109 billion.
That’s not the end of the debate; the two councils can reach an agreement on Wednesday and possibly on Thursday. But the signal that the parliamentarians are sending out here should not be underestimated. They make it clear that they don’t want to simply nod off the rescue operation, which largely came about as a result of emergency law. And you run the risk that the markets react suspiciously to the vote, which tends to weaken rather than strengthen the new UBS. UBS shares did dip a little after Wednesday morning’s vote, but they quickly rebounded mid-morning.
Risks from big banks are to be reduced
The no votes came from the Greens, the Social Democrats (SP) and the right-wing Swiss People’s Party (SVP). They all want to attach conditions to their approval of the loans, which are also currently an issue in Parliament. Some of these conditions found a majority in the National Council, including the demand that the government submit amendments to the banking law to parliament. The risks emanating from systemically important large banks are to be “drastically reduced”. In addition, the government should investigate how the Credit Suisse leadership acted in the course of events and to what extent they can be held responsible. The parliamentarians also want to ensure the competitive situation in the country, despite the new giant bank, by giving the government a corresponding order.
Now it is up to the Council of States, which must debate the deal again and change it in such a way that the National Council may agree to it in a further step. SP and Greens have already indicated that they would agree if the most important conditions make it into the bill. However, if the National Council says no the second time, the deal is dead. That would be a disaster for the Swiss government – also internationally.
It’s election year in Switzerland
In this context, it should be borne in mind that it is an election year in Switzerland. For the parties, it’s also about gaining points with the electorate for their positioning on Credit Suisse. This circumstance could lead to more stubbornness in Parliament: Instead of looking for powerful compromises and politically enclosing the controversial rescue operation as much as possible, the parties on the fringes – SP, Greens and SVP – could decide to continue saying no in order to to stylize themselves as fighters against an overpowering government.
That would only help the Swiss financial center to a limited extent. The dominance of the new big bank in relation to the economic power that houses it is practically unique. What politicians respond to the spectacular merger and the risks it entails is crucial for the future of the banking center.