The recent inquiry into the UBS case has shed light on the Credit Suisse crisis, revealing a series of missteps that resemble the failures of the 2008 financial crisis.
The report, which spans 569 pages, highlights the fact that the lessons from UBS's near-collapse were not learned, and the concept of "too big to fail" did not protect Credit Suisse from its own downfall. This raises concerns about the competence of government and parliamentary oversight, especially as emergency laws were once again used to address a crisis that many believed had already been resolved.
The inquiry suggests that a "public liquidity backstop" could have provided crucial support during the initial bank runs that affected Credit Suisse in the fall of 2022. However, the response to the crisis was characterized by confusion and a lack of strategic foresight. The absence of a robust plan to manage potential crises reflects poorly on the financial authorities, who seemed unprepared for the rapid deterioration of Credit Suisse's financial health.
The report criticizes the regulatory framework that allowed Credit Suisse to manipulate its equity position through "regulatory filters," effectively hiding its true financial state. This not only undermined the integrity of the banking system but also revealed a significant failure on the part of the banking supervisory authority, FINMA. The report argues that FINMA should have taken decisive action against executives who prioritized personal bonuses over the stability of the bank, suggesting that the current regulatory environment is inadequate to deter reckless behavior among banking leaders.
Furthermore, the report highlights the concerning practice of Credit Suisse distributing bonuses that equaled its accumulated losses over the past decade, totaling approximately CHF 30 billion. This raises ethical concerns and questions the accountability of both the bank's management and the regulatory bodies that allowed such actions to continue unchecked. The report emphasizes that permitting these bonuses to be paid out is not only a moral failing but also a significant risk to the financial system.
The inquiry also reveals that the Swiss government was ill-prepared to handle the crisis, while UBS's Chairman took proactive measures to monitor Credit Suisse's condition. The government's reaction was characterized by panic rather than strategic foresight, leading to decisions that are now seen as grossly negligent. One contentious decision was the write-down of AT1 bonds from $17 billion to zero, which gave UBS a significant financial advantage while leaving taxpayers to bear the consequences. The insistence that this was not a bailout raises further questions about transparency and accountability within the government.
The inquiry also highlights the consideration of selling Credit Suisse for a mere billion dollars, a figure that was later adjusted to three billion. This decision is seen as grossly negligent, reflecting a lack of understanding of the bank's true value and the potential implications for the Swiss financial system. The fact that nationalization was only superficially considered further illustrates the shortcomings of the authorities involved, who failed to explore all viable options to stabilize the bank.
The report's findings are particularly alarming given the lack of actionable recommendations for preventing future banking crises. The absence of a clear strategy for winding down a bank as large as UBS without causing significant disruption to the Swiss economy is a glaring oversight. The inquiry concludes that a proactive approach to regulation and oversight is necessary to address the cyclical nature of banking crises, but the current framework appears ill-equipped to handle the complexities of modern banking.
The lessons from the Credit Suisse crisis serve as a reminder of the need for robust regulatory frameworks, ethical governance, and strategic foresight as the financial landscape continues to evolve. The inquiry's findings call for a reevaluation of the existing systems to ensure that past mistakes are not repeated and the integrity of the financial system is preserved for future generations.