ZURICH (Reuters) -Switzerland’s monetary rules want additional strengthening following the takeover of Credit score Suisse by UBS, the Swiss Nationwide Financial institution mentioned on Thursday, urgent for extra to be finished on capital and liquidity necessities.
Credit score Suisse roiled monetary markets final 12 months when it collapsed following a string of monetary issues, and was absorbed by its outdated rival UBS in a state-engineered rescue.
That fed considerations that the enlarged UBS posed dangers for the Swiss financial system and prompted the federal government to suggest more durable rules for banks deemed “too massive to fail” in April.
On the coronary heart of the plan have been proposals to have UBS maintain extra capital, however they nonetheless face a protracted political course of.
In its annual monetary stability report, the SNB mentioned it shared the governing Federal Council’s view on the necessity for motion on capital necessities, liquidity necessities, early intervention, and restoration and backbone planning.
“The disaster at Credit score Suisse has highlighted weaknesses within the regulatory framework,” the report acknowledged.
“The present capitalisation of the mixed UBS mother or father financial institution is stronger than that of the Credit score Suisse mother or father financial institution earlier than the disaster. Nonetheless, the weaknesses of the present regime stay and ought to be addressed,” the central financial institution mentioned.
The SNB particularly backed implementation of the federal government proposals in three areas of capital regulation.
Firstly, it noticed a have to strengthen the contribution of the Extra Tier 1 (AT1) devices to stabilising a financial institution as a going concern. AT1 bonds act as shock absorbers if a financial institution’s capital ranges fall under a sure threshold.
As well as, the central financial institution mentioned, the “prudent calculation” of Widespread Fairness Tier 1 capital ought to be strengthened, as ought to the capital regime for mother or father banks.
“Even with the above-mentioned enhancements to the structure of capital regulation, regulatory ratios stay to a big extent a static measure and ought to be complemented by parts that comprise forward-looking elements, similar to a financial institution’s anticipated profitability,” the SNB mentioned.
The SNB additionally supported a evaluation of the liquidity protection ratio, a key measure to gauge a financial institution’s capacity to satisfy its money calls for, after the outflows of retail deposits through the Credit score Suisse disaster have been bigger and sooner than the ratio assumed.
The financial institution famous that market indicators, similar to credit score default swap premiums and UBS’s share value, prompt that the market is taking a optimistic view of the financial institution’s prospects.
On Wednesday, Switzerland’s monetary regulator FINMA mentioned the UBS takeover of Credit score Suisse didn’t create any competitors considerations, regardless of suggestions from the nation’s antitrust watchdog that it merited additional scrutiny.
The SNB noticed that UBS is within the means of revising its disaster preparedness following the Credit score Suisse takeover, and can submit its emergency plans to FINMA for evaluation.
The SNB famous that since January, systemically essential banks have needed to adjust to new liquidity necessities. These addressed some, however not all, of the weaknesses that materialised through the Credit score Suisse disaster, the SNB mentioned.
Changes might guarantee satisfactory backing of enormous retail deposits with high-quality liquid property (HQLA), it famous.
This might strengthen incentives for banks to channel short-term buyer deposits into longer-term forms of funding, similar to by providing greater curiosity on time period deposits, as a result of longer-term funding varieties do not need to be backed by HQLA, it mentioned.
