New Finma measure puts big bank under pressure

 

The Credit Suisse crisis has shaken the public’s and politicians’ trust in the resolvability of big banks. The Federal Financial Market Supervisory Authority (Finma) wants to change that. On Tuesday she filed new claims against UBS. She wants an additional option to be able to intervene at the big bank in the event of a crisis.

Today, the regulator only has two options open to him if a major systemically important bank gets into trouble: Either the bank goes bankrupt – with all the unpleasant consequences. Or it will be restructured, restructured and continued, as provided for in the “too big to fail” regulations.

The third option is intended to increase the leeway for the authorities in a future big bank crisis. The financial market supervisory authority wants to be able to order the bank to sell or shut down business areas individually.

Finma wants extensive competencies

The creation of the possibility of an orderly market exit is to be welcomed. In relation to the Credit Suisse crisis, that would have meant that on the weekend in March 2023, the federal government would not have been dependent on UBS to save CS, for better or for worse. Other buyers, such as the asset manager Blackrock, which was also interested in parts of the failed major bank, would also have been considered.

However, it is still unclear how these partial sales will work in practice. The only thing that is clear is that Finma wants to gain far-reaching competencies that may involve interventions in the structure and business model of a bank. With this announcement, Stefan Walter, the new head of the authority, is at least publicly serious about the tougher course he is taking towards the big bank.

However, legal adjustments are required so that the regulator can implement the new option. They are necessary, among other things, because Finma wants to combine the partial sales with a recapitalization of the bank, a so-called bail-in. However, this is currently only intended for the case that a bank is to be restructured and continued to operate. Finma examined this option in the winter of 2022/23 at the height of the CS crisis and then rejected it again because it would have led to major legal uncertainty.

If a systemically important bank like UBS falls into crisis, selling individual parts of a bank can definitely make sense, at least on paper. Not least because in the event of a possible future UBS crisis, there would no longer be a major Swiss bank as a buyer for the entire bank. In addition, activating the bail-in would have the advantage that Finma would not have to let the market dictate the price for the parts of the bank to a lesser extent.

The big bank is under international pressure

However, Finma’s additional processing option will not be available to the bank free of charge. In order for the individual business areas or legal entities to be separated from a bank as quickly as possible in a crisis, a certain level of unbundling within the group must take place in preparation for this.

And this, even if a lot is still unclear. If the financial market supervisory authority is given the authority to intervene in the big bank’s business model, this means that, in the worst case scenario, UBS will not be able to fully utilize the synergies that it expects from integrating Credit Suisse. It has set itself a strict savings target; the bank wants to save $13 billion by the end of 2026.

Bank boss Sergio Ermotti is already complaining that regulation in Switzerland is hindering UBS’s international competitiveness, especially compared to the large American banks. Finma should not overdo it here and not tie UBS back too much. A weak big bank cannot be in the interest of the regulator.