Global banking watchdog dismisses need for change after Credit Suisse debacle

By Huw Jones

LONDON (Reuters) – A global body with banking oversight has played down the rescue of Credit Suisse, saying there was no need for an overhaul of international rules written after the global financial crash 15 years ago to prevent such a debacle.

The Financial Stability Board, an influential group of central bankers, regulators and officials from the globe’s top economic powers, issued its report of “lessons to be learnt” on Tuesday, concluding the framework was a success.

In particular, it examined why Swiss authorities had chosen to back a takeover by larger rival UBS instead of winding up the bank under a “resolution” mechanism designed after the 2008 global financial crash.

The officials summed up that the “resolution” rules for shutting a collapsing bank without panicking markets could have worked for Credit Suisse, though public money would still likely have been needed.

“This review reaches the conclusion that recent events demonstrate the soundness of the international resolution framework in that it provided the Swiss authorities with an executable alternative to the solution that they deemed preferable,” the FSB said.

Only enhancements to how the rules are applied might be needed, rather than changes to their substance, it said.

The report jars with a barrage of criticism earlier this year when UBS Group emerged as Switzerland’s single largest bank after the government hastily arranged and partly bankrolled its takeover of stricken Credit Suisse.

The FSB report sheds light on events that led to the Swiss bank’s collapse.

In the middle of 2022, Swiss regulator FINMA began crisis talks with international peers. The Swiss considered a ‘resolution’ to wind up the bank, nationalisation or a merger.

U.S. authorities cautioned against resolution, which would have hit bonds owned by U.S. investors, pointing to legal obstacles.

As newly appointed management grappled with the bank, they encountered “extreme episodes of liquidity stress” in the first half of October 2022, when panicked clients withdrew between 12 and 15 billion Swiss francs ($16.5 billion) daily.

The group recovered before ructions in the U.S. banking market triggered a share price dip and fresh withdrawals the following March, pushing it into the arms of UBS.

The report stops short of criticising Switzerland even though Bank of England Governor Andrew Bailey has said the Swiss did not follow the “playbook”, creating “ambiguity” in markets about the credibility of resolution of big banks.

The FSB said Switzerland’s action preserved financial stability, even though it raised questions as to why the resolution was not chosen.

($1 = 0.9076 Swiss francs)

(Reporting by Huw Jones; editing by John O’Donnell, Paul Simao and Christina Fincher)