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In the tumultuous saga leading up to the weekend rescue of Credit Suisse by UBS

In the tumultuous saga leading up to the weekend rescue of Credit Suisse by UBS, it has been revealed that approximately six months prior to the acquisition, the Swiss central bank, led by Thomas Jordan, contemplated injecting a substantial 50 billion Swiss francs ($57.6 billion) into the beleaguered bank, with the idea of nationalizing it. This revelation comes from three sources with direct knowledge of the situation. Facing severe challenges, including scandals and failed restructuring attempts, Credit Suisse experienced massive deposit outflows in October 2022.

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Amid concerns of an existential crisis at Credit Suisse, the Swiss National Bank (SNB) Chairman and other officials deemed nationalization a potential solution, allowing regulators to install new management to restore confidence. However, Swiss financial regulator FINMA, along with the finance ministry and Credit Suisse's management, opposed this approach. Consequently, Swiss authorities, unable to reach a consensus, opted to let the bank navigate its own path.

This episode, now disclosed in detail for the first time, underscores points of contention among Swiss officials over bank regulation and managerial autonomy. Over two dozen interviews with individuals, including current and former officials, industry executives, and advisers, reveal that these differences compromised Swiss regulators' ability to effectively oversee Credit Suisse. The bank's subsequent collapse in March, due to a deposit run, caught Swiss authorities unprepared, leaving them with the only viable option: selling it to UBS, supported by over 200 billion francs in state-funded guarantees.

The fallout from Credit Suisse's demise tarnished Switzerland's reputation as a financial hub and safe haven, challenging the perception that global banks are now safer. As UBS absorbed Credit Suisse, Switzerland now faces the challenge of overseeing a significantly larger bank, with UBS boasting a balance sheet exceeding $1.6 trillion, nearly twice the size of the Swiss economy.


Stefan Gerlach, chief economist of Switzerland’s EFG Bank, and former deputy governor of Ireland’s central bank, commented on the situation, stating, “Many people here feel that it would’ve been much better if policymakers had acted much earlier. One element common to many financial crashes is that politicians are often too quick to accept the views of the largest banks.”

A finance ministry spokesperson acknowledged the consideration of temporary public ownership but deemed it not the "best available solution." The spokesperson mentioned that the government is currently reviewing bank regulation but provided no further details.

FINMA defended its actions, stating that it started demanding concrete steps from Credit Suisse in the summer of 2022 to prepare for a crisis, recognizing the risk of destabilization. These steps included preparing for the sale of business units and, eventually, the entire bank. FINMA had alternatives to a UBS sale, such as resolution or nationalization, according to a spokesperson, who mentioned the regulator's upcoming report on its handling of the crisis.

The lack of regulatory power at FINMA has been cited as a contributing factor to the oversight challenges. With powers among the weakest in the Western world, FINMA lacks tools such as the ability to fine banks. Attempts to secure additional powers and a financial liquidity backstop were unsuccessful in 2021. The regulator faced resistance from the finance ministry, led by Ueli Maurer, a member of the pro-bank Swiss People’s Party.

The Swiss finance ministry, during Maurer's tenure, leaned towards supporting banks' complaints about FINMA's perceived intrusiveness. Despite FINMA's efforts to secure additional powers and a liquidity backstop, the ministry did not provide support. In 2021, Marlene Amstad assumed the role of chair at FINMA, leading to internal friction and restructuring within the regulatory body.

Credit Suisse's troubles began to surface in February 2020, with the departure of CEO Tidjane Thiam over revelations of the bank spying on top executives. The public display of regulators' concern was minimal, as warnings about the bank were carefully phrased to avoid causing panic. As the COVID-19 pandemic unfolded in 2020, Credit Suisse faced challenges meeting its funding needs, with a rush for cash exacerbating the situation.

Scandals, including losses from dealings with Greensill and the collapse of hedge fund Archegos in early 2021, further strained Credit Suisse's liquidity. FINMA heightened supervision, requesting daily liquidity reports, but its limited powers impeded effective intervention.

In October 2022, a social media post triggered a run on Credit Suisse, resulting in over 100 billion francs in customer withdrawals. Despite FINMA setting up a crisis group and instructing the bank to prepare contingency plans, including data rooms for a potential sale, the regulator opposed nationalizing the bank, believing that a change in management alone would not address deeper issues.

The subsequent deposit run in March 2023 prompted Credit Suisse to seek regulators' help, calculating that a 50 billion franc lifeline from the SNB would suffice. The SNB, in a race to secure funding, turned to the U.S. Federal Reserve, withdrawing about $60 billion through a little-known funding line. As the situation reached a critical point, the head of an emergency taxpayer funds group received a call, signifying a need for swift action to save Credit Suisse.

The newly appointed Swiss finance minister, Karin Keller-Sutter, conveyed the urgency of the situation, emphasizing that the country's financial and economic stability depended on saving Credit Suisse. Ultimately, on a Sunday, UBS agreed to acquire Credit Suisse for 3 billion francs in stock, backed by the Swiss government. The ordeal has raised concerns about the efficacy of Swiss financial regulation and the ability to prevent a recurrence of such crises.

“After we rescued UBS, the promise was never would this happen again,” commented Daniel Zuberbuehler, Switzerland’s chief regulator during UBS's bailout in 2008. “It has happened again.”



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