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
On Tuesday and Wednesday, the 109 billion that the Swiss state directly secures were 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 came together for an extraordinary session lasting several days in Bern.
The large chamber, the National Council, and the small chamber called the Council of States discussed the business in turn. 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 wasn’t the end of the debate. On Wednesday, the Council of States tried to save the deal with a compromise proposal: He wanted to supplement the decision with an order to the government, which is called the Federal Council in Switzerland. Accordingly, the Federal Council should develop an amendment to the Banking Act and submit it to Parliament. The risks emanating from systemically important large banks are to be drastically reduced – among other things through higher capital requirements and restrictions on bonuses. However, according to the wording, the government should only “check” these measures.
The National Council then debated this proposal early on Wednesday afternoon – and finally rejected it by 103 votes to 71 with 8 abstentions. Because it’s the second no, that’s the end of the deal. Parliament did not subsequently approve the commitment credits. This vote is quite a disaster for the Swiss government, also internationally. She has no political backing for the deal, which largely came about through emergency law. The parliamentary decision is also a kind of vote of no confidence for the new UBS. Your shares fell a little on Wednesday morning after the first rejection by the National Council, but then recovered again.
With the vote, the majority of the national councilors have made it clear that they do not want to simply nod to the government’s controversial bailout – even if their decision no longer changes the 109 billion granted. The Greens, the Social Democrats (SP) and the right-wing Swiss People’s Party (SVP) voted no. They had already tied their consent to certain conditions in advance, which, however, only partially matched. The parties did not see their conditions fulfilled in the compromise proposal of the Council of States either.
The opportunity for a quick implementation of some ideas has passed
Now the political players go back to zero. Parliament has sent a clear signal – but the various proposals for regulating banks and reorganizing the Swiss financial center are also off the table or at least need new attempts. For example, there was a demand that the government should investigate how the Credit Suisse leadership acted in the course of events and to what extent they can be held accountable. Some parliamentarians also wanted to ensure the competitive situation despite the new giant bank by giving the government a corresponding order. A reorganization of the competences of the financial market supervisory authority Finma and the introduction of a separate banking system were also discussed. They should keep Parliament busy. But the chance for a quick implementation of some ideas has now passed.
It’s election year in Switzerland
Interesting in this context: 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. Perhaps it was this circumstance that prevented a compromise. The parties on the fringes, i.e. SP, Greens and SVP, were able to show a clear edge in the debate without direct consequences. And the camp in between – the liberal FDP, the center and the green liberals – were able to give the warnings of the financial center, but still prevent effective regulatory initiatives.
All of this only helps 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.