UBS, the only major bank in Switzerland, is facing regulatory pressure from FINMA to revise its contingency plans in the event of a crisis. The current strategies in place have been deemed insufficient, prompting a directive for UBS to expand its options for winding down operations if necessary. This scrutiny comes as discussions about the bank's size and systemic importance within the Swiss financial landscape continue, raising concerns about its potential impact on the economy.
The integration of Credit Suisse into UBS's operations has necessitated a reevaluation of the bank's emergency and stabilization plans. FINMA has suspended the annual approval process for these plans, indicating that significant adjustments are required to ensure that UBS can be effectively restructured or liquidated if needed. The regulator emphasizes the need for a more comprehensive approach that includes business continuity through restructuring as well as the feasibility of market exits via the sale or winding down of specific business units.
In light of the evolving financial landscape, FINMA is advocating for changes to the legal framework governing UBS's operations. The regulator highlights the importance of adapting legislation to provide authorities with additional options and flexibility during a crisis. Currently, UBS's emergency planning primarily focuses on maintaining business operations through restructuring efforts. However, the regulator insists that the bank must also prepare for the possibility of selling the entire institution. This shift in strategy reflects a growing recognition of the complexities involved in managing a bank of UBS's size and significance, particularly after the integration of Credit Suisse.
Despite the challenges posed by the integration of Credit Suisse, FINMA has affirmed that UBS meets the necessary requirements for loss absorption capacity. The regulator indicates that the bank could be resolved today using the preferred "Single Point of Entry" recapitalization strategy, which streamlines the resolution process and maintains stability in the financial system. However, the integration process highlights the need for standardization across UBS's structures, processes, and IT platforms. As the bank navigates this transition, it is crucial to revise liquidity planning and refinancing strategies for its Swiss unit, particularly in the context of activating emergency plans.
As a globally systemically important bank, UBS is mandated to have comprehensive emergency and stabilization planning in place. The regulatory landscape surrounding such institutions focuses on ensuring they can withstand financial shocks without jeopardizing the broader economy. Enhancing contingency plans is a priority for UBS, with an emphasis on legal certainty and implementing measures identified in the TBTF report. The call for a Public Liquidity Backstop, as outlined in the report, is particularly significant, aiming to provide additional support to banks during times of financial distress. The integration of these legal and regulatory frameworks will play a vital role in bolstering UBS's resilience as it prepares for potential future crises.