The ‘too big to fail’ regime for banks just doesn’t work, Swiss minister says. ‘The economic damage would be considerable’
Switzerland’s finance minister, having survived last weekend’s Credit Suisse ordeal, says she’s formed some opinions about the rules for winding down big banks that followed the 2008 financial crisis—namely, they don’t work.
“Personally I have come to the conclusion…that a globally active systemically important bank cannot simply be wound up according to the ‘too big to fail’ plan,” Karin Keller-Sutter told Zurich newspaper Neue Zürcher Zeitung (NZZ) in an interview published Saturday. “Legally this would be possible. In practice, however, the economic damage would be considerable.”
Citing expert estimates, she said the impact of a disorderly bankruptcy could have been as much as double Swiss economic output.
Keller-Sutter sat at the center of emergency negotiations last weekend, when Swiss authorities mulled nationalizing Credit Suisse after the bank rejected a takeover offer from UBS for about $1 billion
UBS eventually agreed to pay more than $3 billion for Credit Suisse in a government-brokered deal, helping to contain a crisis of confidence with global ramifications. Not that everyone was pleased: About $17 billion of risky Credit Suisse AT1 bonds suddenly became worthless.
“This was the only possible solution,” she said Sunday, describing the deal as necessary to stabilize the Swiss and international financial markets. But as she told NZZ, last weekend “was clearly not the moment for experiments. The crash of Credit Suisse would have dragged other banks into the abyss.”
An orderly wind down would have caused “considerable” damage to Switzerland, which risked becoming “the first country to wind down a globally systemically important bank,” she told NZZ in her first interview since the crisis. (Bloomberg and the Financial Times reported on the interview earlier on Saturday.)
Credit Suisse would not have survived another day of trading, she told NZZ. Swiss authorities had raced to finish a deal before markets opened in Asia on Monday. “Without a solution, payment transactions with CS in Switzerland would have been significantly disrupted, possibly even collapsed,” she noted.
And, she added, “it was clear to everyone—including ourselves—that a restructuring or liquidation of CS would trigger major international upheaval in the financial markets.”
But she dismissed the idea that the U.S. pressured Switzerland into the deal, saying: “It wasn’t as if the U.S. Secretary of the Treasury, Janet Yellen, said to me on the phone: You have to make sure that UBS buys CS.”
This story was originally featured on Fortune.com
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