Swiss Expert Group Says Finma Should Be Able to Fine Banks

(Bloomberg) — Switzerland should give its financial supervisor Finma the power to fine banks and make it easier for troubled lenders to receive emergency liquidity, an expert panel said on Friday.

(Bloomberg) — Switzerland should give its financial supervisor Finma the power to fine banks and make it easier for troubled lenders to receive emergency liquidity, an expert panel said on Friday.

The group was convened in May to draw up ideas for bolstering the stability of Switzerland’s banks, after the emergency takeover of Credit Suisse by UBS Group AG led to the creation of a lender twice the size of the Swiss economy. The government must now decide which, if any, of the panel’s suggestions it wants to pursue.

Click here for an overview of the expert group’s membership.

“The finance ministry should develop a regulatory framework to supplement Finma’s supervisory instruments and enable it to supervise systemically important banks more effectively,” the experts wrote.

They propose:

  • Finma should receive the power to issue prompt corrective actions, to vet senior managers and to “name and shame”
  • Finma should also be allowed to intervene preemptively when a lender is deemed likely to collapse
  • Switzerland should address the “gaps” in the provision of emergency liquidity to troubled banks that have emerged during the Credit Suisse crisis
  • Finma’s ordinary supervision and data-processing capacity should be extended; and transparency around bank funding must be improved
  • The Swiss National Bank should expand the types of collateral it accepts in exchange for its emergency liquidity facility; and make efforts to reduce stigma for banks using the facility
  • Finally, steps should be taken to revive the Swiss market for loss-absorbing bonds known as AT1, that has been impaired by the wipe-out of $17 billion of Credit Suisse convertible bonds

Finma has argued that it should get similar powers to those of the US Securities and Exchange Commission. Finance Minister Karin Keller-Sutter said last month that supervision is “certainly” on the list of possible reform topics.

The report also suggests that Finma work with the SNB and the finance ministry to establish joint-responsibility for planning a liquidation and handling a crisis, and to test this coordination regularly in simulations.  

The government will now likely take several months before it decides what reforms it will pursue. In April of next year, the executive is due to present a regular report on Switzerland’s systemically relevant banks, which could also be an opportunity to present an agenda.

All proposals will later need a nod from parliament, where lawmakers have also presented proposals. Government-backed bills in the Swiss system have generally a much better chance of being passed into law.

Three weeks ago, UBS voluntarily gave back  a government guarantee partially protecting it from losses stemming from the takeover, and paid back all extraordinary liquidity help less than five months after the deal was announced. On Thursday, UBS posted the biggest ever quarterly profit for a bank on the back of the bargain acquisition that closed in June.

Calls for Reform

For the Swiss National Bank, the Credit Suisse debacle has shown how existing rules can end up slowing a bank’s response to stress situations. In particular, the way that AT1s and liquidity requirements work meant that Credit Suisse didn’t address the emergency as quickly as needed, according to the report. It also suggested that lenders should earmark a certain sum of assets to use them in an emergency as collateral for central-bank liquidity, and pointed to “vulnerabilities” in the definition of the capital strength measure CET1.

The expert panel urged the SNB itself to relax its rules around provision of Emergency Liquidity Assistance, in particular the acceptance of illiquid securities that the broader market would not necessarily accept in times of crisis. The SNB’s framework should become more liberal, Yvan Lengwiler, said at a press conference in Bern on Friday.

(Updates with expert comment in final paragraph)

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