It remains unclear as to whether all the lessons have been learned from the rescue of what was once Switzerland’s second-largest bank, writes editor Andrew Isbester for finews.com.
It is easy to showcase direct democracy as this very enviable model for interested outsiders. You can hold up the red national referendum pamphlets that you get to vote on by snail mail as a clear example.
You might even read excerpts from the neatly spaced arguments for and against each question being put to voters to the oohs and aahs of interested, angst-ridden citizens who, without directly naming names, seem to feel their countries are falling apart.
Uneasy Observation
But as you insert your voting form and fit the enclosed address slip, maneuvering it to make sure it remains visible in the same windowed envelope you received, you realize that watching it from afar is not quite so easy, particularly when it comes to matters of global relevance.
A key one, probably the main one, was last year’s government-prompted rescue of Credit Suisse by UBS. At first, it seemed to make sense. It stopped the viral, social media-induced outflows that had prompted a near-collapse in the bank’s share price.
Making Sense
Moreover, it appeared to be what international regulators worldwide wanted to happen given the importance of maintaining stability in the world’s financial markets in the wake of Silicon Valley Bank’s failure.
Apart from the pesky, unending AT1 debacle that still bounces around uncomfortably in the background, it seemed to quieten things down measurably. The banking world stopped for a moment, looked, and went back to work.
Much Movement
It is the reaction afterward that seems much more perplexing. We have some movement here and there, an initial Finma report, sporadic interviews here by senior bankers, government officials, and regulators – and a parliamentary investigation commission report that is still some way off.
In all that, there seems to be little in the way of a comprehensive, no-holds-barred federally mandated third-party root cause analysis for general societal consumption of what happened as well as immediate steps to make sure that it doesn’t happen again, or if it does, to have the means and tools to contain it as soon as possible - not years from now.
Public Display
Given that the assets of the integrated UBS-Credit Suisse are now likely about twice that of Switzerland's annual GDP, that report should be published and mailed to all voters free and held publicly visible for inspection in all the bank branches in the country, the regulator, the central bank and the federal finance department.
Let’s keep things simple and pick from two recent examples of the kind of thinking and urgency that is potentially needed. In a recent finews.asia comment from February, the US Federal Reserve’s vice chair for supervision Michael S. Barr unabashedly noted that the bank had issued more enforcement actions as a way of getting supervisors to focus adequate attention on areas that «matter most» to individual banks.
No Fines Needed
We should put that up against the comment by the Swiss Bankers Association (SBA) during their annual media conference. The whole package of measures seemed more than reasonable, including the point of additional disclosure of enforcement actions. Still, they rejected the request by Swiss regulator Finma to even be in a position to impose fines.
The statement came across as a defensive, hair-splitting gesture, at least when it comes to terminology, as a quick look at the list of recent Fed enforcement actions shows fines accompany most actions.
More Thinking Needed
In short, the two terms are not mutually exclusive, and they are somewhat interchangeable. The limits of current institutional thinking can also be gleaned from the statement that fines did not work at Credit Suisse even though it was one of the most heavily penalized banks, as finews.com previously indicated.
That could be true – just as much as the bank could be the glaring exception that proves the rule. To wit, there is a long list of other international financial institutions that substantively changed their ways after facing enforcement action – and fines.
Big Cleanups
In Europe, examples of that include HSBC’s steps to clean up its anti-money laundering framework after a singeing 2012 penalty and enforcement action, as well as steps taken against BNP Paribas in 2014 related to sanctions breaches.
You don't even need to go that far afield. You can look to UBS’s 2009 deferred prosecution agreement related to its cross-border business, levied shortly after it was rescued by the Swiss government during the financial crisis. In hindsight, the step has been seen as a key factor prompting the subsequent start of the so-called white-money era in private banking.
Only One Side
It is unclear why you would just focus on just one side of the argument, or how and why it did not change the direction of one specific institution, and not the other, which is the number of times that financial penalties, and enforcement actions, may have actually had the intended effect.
But there is something that is even more important than that consideration. And that is why would you agree to a large laundry list of wide-ranging measures aimed at improving banking supervision while leaving that specific one out, as the SBA seemed to do?
Making No-one Happy
Objectively, it is just another part of the compliance toolbox. It might be symbolic, but it has proven to be an important adjunct of enforcement in many jurisdictions, and it should not be ignored.
This all might be to placate the more conservative, entrepreneurial elements of society, including many of the domestic financial hub’s leaders.
Leaving it to Someone Else
In the same breath, you can turn their likely proto-capitalist arguments on their head, saying that if the institutions are not financially penalized in Switzerland, and directly, someone else will be happy to come along and do the job for them.
In effect, that is what has been taking place for several decades now in many other jurisdictions.
The Question of Overreaction
Right now, it seems like Switzerland has become ground zero for the argument as to whether principles-based regulation works or not. But the evidence of banks and bankers behaving properly because that is the right thing to do seems to point straight in the opposite direction, something that became evident in the 1990s and then reached alarming levels during the global financial crisis.
Despite all that, the greater fear, right now, in leadership circles remains a possible domestic political and regulatory overreaction. But exactly one year on from the rescue, we need to ask ourselves whether over-reacting and going about things with a bit more urgency is such a bad thing, particularly if it helps to make sure that a Credit Suisse, as UBS before it, doesn't go and happen again.
