The federal government wants to introduce the financial measures used to rescue Credit Suisse in March into ordinary law as quickly as possible.
The Federal Council is opening a consultation process to introduce public liquidity backstops (PLB) for systemically important banks with immediate effect, it said in a statement from the Federal Department of Finance (FDF) Thursday.
With this bill, the foundations for the PLB introduced by the Federal Council last March by emergency law to save Credit Suisse - as well as other measures introduced at that time to support the takeover of Credit Suisse by UBS - will be transferred into ordinary law. Due to the urgency, the consultation will be shortened and will last until June 21.
Billions Mobilized
The aim is to make state liquidity guarantees a regular instrument to safeguard the financial stability in Switzerland.
As part of the March bailout, Credit Suisse received an offer of up to 100 billion Swiss francs as a PLB (backed by a federal guarantee and bankruptcy privilege). By the end of April, Credit Suisse drew around 10 billion francs of this amount.
The idea did not come out of the blue: Already in 2012, regulations came into force in Switzerland that were supposed to increase the liquidity requirements of systemically important banks.
On March 11, 2022, just one year before the Credit Suisse bailout, the Federal Council also adopted key parameters for the introduction of a PLB, thus also responding to foreign regulatory efforts.
No Use Waiting
In order to avoid adding to the uncertainties surrounding Credit Suisse, it made sense for the federal government to wait before launching the consultation process, as Finance Minister Karin Keller-Sutter said at the press conference announcing the takeover on March 19.
But the wait-and-see tactic was no longer able to avert the downfall of CS.
The federal government and the authorities insist that they did not react to pressure from abroad during the operation.
Nevertheless, the idea for a PLB most likely came from overseas. In the US, the instrument has just been put to use to prevent a financial contagion following the bankruptcy of California's Silicon Valley Bank.
Hybrid Version
After Credit Suisse's first bank run last fall, the Swiss government, together with the Swiss Financial Market Supervisory Authority (Finma) and the Swiss National Bank (SNB), considered several scenarios for the crisis-ridden big bank, evaluating state rescue, bankruptcy and sale. In the end, in view of the volatile situation in financial markets, the decision was made in favor of a hybrid form plus PLB.
The fact that a controlled bankruptcy under the «too-big-to-fail» regulation in place since 2012 was out of the question is one of the major disappointments of the rescue operation. As it was now further said on Thursday, the federal government now also wants to go over the books here.
Too Big to Fail
As part of the review of the events surrounding the takeover of Credit Suisse by UBS, which was decided by the Federal Council on March 29, the entire Swiss too-big-to-fail regulatory framework and thus also the instruments contained in this bill are being comprehensively assessed. Results will be submitted to parliament in spring 2024.
