Swiss central bank calls for more capital rules after Credit Suisse saga
By Noele Illien and Stefania Spezzati
ZURICH (Reuters) - The Swiss National Bank called on Tuesday for an overhaul of bank capital regulations, saying that Switzerland needed rules that recognise UBS has become a bank with even more systemic importance following its takeover of Credit Suisse.
In its annual report, the SNB also said it would accept some forms of credit as collateral from banks wanting to access cash in an emergency, a significant move that is designed to ensure banks do not run out of cash in a crisis.
Last year, the SNB said Credit Suisse's lack of collateral accelerated the bank's collapse.
The central bank had signalled its intention to enlarge the pool of assets that can be pledged to include credit such as Lombard and commercial loans, Reuters reported on Monday.
Though the central bank can determine what collateral banks can use to cover liquidity needs, parliament is the prime mover in setting financial regulations, working off government recommendations.
"The systemic importance of UBS has increased considerably with the acquisition of Credit Suisse. A review needs to be made as to whether the progression takes adequate account of this increase in systemic importance," the SNB said.
UBS declined to comment on the SNB report.
Broadening the range of assets could enable UBS to significantly expand how much it could tap in an emergency. As of the end of 2022, UBS had $154 billion of Lombard loans on its books.
The SNB said banks' financial positions needed to be strengthened to avoid future crises.
"In particular, the SNB recognises a need for action in the areas of early intervention, capital and liquidity requirements, and resolution planning," it said.
The central bank's report comes as the Swiss government is preparing its own recommendations on how to deal with banks that are "too big to fail", expected to be published next month.
Last year, the SNB played a major role in the state-sponsored rescue of Credit Suisse, making over 200 billion Swiss francs of liquidity available to ease its takeover by UBS.
It also took flak, however, from some critics who argued Credit Suisse could have been saved if the SNB had acted sooner.
The SNB said in its report that it became apparent that some of Credit Suisse's Common Equity Tier 1 (CET1) capital was "not of a high enough quality". Days before the bank's implosion in March 2023 the SNB said the bank met its capital requirements.
The SNB highlighted a need for action in two areas on capital regulation: AT1 bond instruments and the strength of CET1 ratio, a measure of capital strength.
AT1 bonds act as shock absorbers if a bank's capital levels fall below a certain threshold. They can be converted into equity or written off.
The SNB said on Tuesday that in the case of Credit Suisse, the bank failed to use its loss-absorbing capacity ahead of its downfall.
The aim, the SNB said, should be to suspend buybacks and convert the AT1s into capital "at an earlier stage".
The central bank also said it was important to ready a broad range of options for the resolution of a systemically important bank.
In the event of a liquidity crisis, it is vital that market regulator FINMA "is able to enforce resolution measures in a timely manner and with sufficient legal certainty", the SNB said.
In order to stabilise a systemically important bank in time, the SNB said that the "early intervention tool kit" should be expanded to include market-based and forward-looking indicators.
The SNB said it is participating at national and international level in the debate about regulatory adjustments.
(Reporting by Noele Illien; additional reporting by Stefania Spezzati and Oliver Hirt; Editing by Dave Graham, Susan Fenton and Bernadette Baum)
