The Financial Stability Board questioned the decisions made during the Credit Suisse crisis, ultimately leading to its takeover by UBS. Alternatives were available, but that would have meant a liquidation, not a bailout.

In its recent report, «2023 Bank Failures Preliminary lessons learned for resolution», the Financial Stability Board (FSB) defends Switzerland's decision to support a bailout of Credit Suisse through its takeover by rival UBS.

It concludes it would have been possible within the existing international framework to liquidate Credit Suisse through due process and that the system is a success overall.

Not Without State Funds

Resolution rules for closing a collapsing bank could have been applied to Credit Suisse without panicking the markets, although public money would still have been necessary.

«This review reaches the conclusion that recent events demonstrate the soundness of the international resolution framework in that it provided the Swiss authorities with an executable alternative to the solution they deemed preferable,» the report said.

Last Resort

Swiss financial market regulator Finma always clarified during the crisis that applying the proposed liquidation rules would be a last resort if a takeover failed.

The FSB also contradicts the view that regulation wouldn't work in a banking crisis. «However, the FSB's review does not support that conclusion. A resolution was ready to be implemented that weekend. While the choice of resolution would have presented some uncertainties, as would any solution to a banking crisis, the Swiss authorities considered that an alternative option was preferable.»

Stabilizing the Situation

The advantages of UBS's emergency rescue over liquidation are apparent. Credit Suisse remained in existence, and clients could continue to do business with it and reallocate their funds elsewhere. The disruption to the economy was also limited, but there was still a price to pay, which left AT1 bondholders stuck with the tab.

In the end, the measures taken by the Swiss authorities undoubtedly stabilized the situation and ensured financial stability, the FSB said.