Swiss National Bank Urges Banks To Pledge Assets At Central Banks To Avoid CS Like Crisis

The Swiss National Bank (SNB) learned a lesson from the downfall of Credit Suisse Group AG ADR (Sponsored) CS and is planning to undertake measures to prevent such events in the future.

In its 2023 financial stability report, the bank stated the need for appropriate measures to prevent a loss of confidence and provide several effective options to stabilize, recover or unwind a systemically important bank during troubled times.

The bank disclosed three observations from the CS crisis.

SNB believes compliance with capital requirements is essential 'but not sufficient to ensure confidence in a bank,' and deposit outflows' scale and rate that resulted from the loss of confidence were unusual and 'more severe than assumed under the liquidity regulations.'

Also, SNB noted 'AT1 capital instruments absorbed losses only as the point of non-viability was imminent, and state intervention became necessary.'

As a key takeaway from the crisis, SNB thinks the banks must pledge a minimum amount of assets at central banks. 

Notably, this month, UBS Group AG UBS completed the acquisition of CS.

With the merger's completion, UBS' assets amplified and reinstated its position as the largest bank in Switzerland.

Some politicians and economists are concerned about the ability of Switzerland to efficiently manage a bank having around 120,000 employees globally and a balance sheet of $1.6 trillion, reported Reuters.

SNB didn't discuss the stress test results for combined banks in the report, citing insufficient data for a comprehensive assessment.