The Swiss central bank has devoted some extra resources to compile an overview of the country’s financial market ten years after 2008. As is the prerogative of a central bank, it has issued a few words of caution directed at the country’s largest banks.

Ten years appear like an eternity on the financial markets, but central bankers have a knack of remembering was it used to be like: in its latest financial stability report the Swiss National Bank (SNB) reminded its readership about the events on October 16, 2008, when it assumed some $60 billion of bad loans from UBS and the government stepped in with 6 billion Swiss francs ($6 billion) to recapitalize Switzerland’s largest bank.

Those events are a lesson for the present and future, the bank said: «As good times return, risk are often underestimated and the benefits of the measures put in place are often overlooked.» Switzerland’s monetary policy authority goes on to list a few points it likes the private sector to recall:

  • No letting up: the too-big-to-fail rules introduced after the crisis for UBS and Credit Suisse as well as the Basel III regulation appear fairly complex. But, at heart, they remain essential if the banking industry wants to survive the next crisis. The current economic conditions therefore are to be used to completely implement these measures.
  • Regulators need to remain consistent: the time before the crisis had seen a loosening of banking regulation. «Banks and authorities were confident that the interplay between complex financial market products, developments on the financial markets and the behavior of financial market participants could be accurately replicated in models. The authorities gave banks more and more freedom.» The SNB no doubt is looking closely at the developments in the U.S. Its conclusion from the last crisis shows that regulators had been taken by surprise and that taxpayers in the end were forced to foot the bill.
  • No more excuses: complaints by banks that the need to improve their capital base would lead to a dearth of money available for loans had been shown wrong by a number of studies, the bank said. The too-big-to-fail requirements of 2012 by no means had limited the release of credit.
  • Switzerland remains exposed: even if UBS and Credit Suisse had taken great strides to implement the lessons from the last crisis, their balance sheets remained in excess of the Swiss GDP. It might thus not be financially sustainable for the country to finance another rescue package.

The big banks in Switzerland therefore have to make sure that the tougher capital demands are met in full by 2019. The SNB has taken note of the two companies’ intentions to pay out higher dividends henceforth even though their work hasn’t been completed yet and that resolution planning for the worst case in particular had to be implemented in full.