GENEVA – The marriage of UBS and Credit Suisse was hastily arranged to prevent a global financial meltdown – but the size of the resulting megabank could cause domestic problems in Switzerland, the central bank admitted yesterday.
The Swiss National Bank, which played matchmaker in Sunday’s takeover of Credit Suisse, said the formation of one giant bank in Switzerland would create competition issues that would need addressing carefully.
UBS was already the biggest bank in the country – and will now become even larger after swallowing up the second-most important bank in the wealthy Alpine nation, where a vibrant banking scene is central to Swiss culture.
With Credit Suisse shares in freefall last week, the Swiss government, the SNB central bank, and the Finma financial regulators strongarmed UBS into buying its stricken rival before the markets reopened on Monday.
SNB chairman Thomas Jordan said this avoided triggering a wider banking crisis around the world – though he accepted that domestic banking choice in Switzerland had taken a hit.
Future competition
“UBS will be a very big bank and competition issues will be relevant,” Jordan told reporters at the SNB headquarters in Zurich.
“We have to make sure that in the future in Switzerland, there will be enough competition for providing banking services. I think this is in the interest of everybody, including UBS.”
He said Finma and the Swiss Finance Ministry would have to look at dealing with the situation.
“But at this moment, I think the focus has to be ensuring that we can maintain financial stability under all circumstances.”
Behind UBS and Credit Suisse in Switzerland, only Raiffeisen and PostFinance – the financial services unit of Swiss Post – rank as domestic systemically important banks, along with the cantonal banks of Zurich and Vaud, which have limited reach beyond those regions.
Jordan insisted that Switzerland’s emblematic banking industry is in good health.
“The Swiss banking system is very resilient and robust,” he said.
UBS and Credit Suisse were both among the 30 banks around the world deemed “too big to fail” and therefore considered Global Systemically Important Banks.
Such banks are ranked according to their importance to the global financial system and must comply with more stringent requirements, including the level of capital they must set aside to weather a crisis.
The strictest rules apply to the United States bank JPMorgan Chase, but UBS is likely to jump up in the rankings.
The Swiss authorities will have to learn to manage a bigger bank presenting greater systemic risks.
Jeopardy risk
The implosion of Credit Suisse came after the collapse of two tech-lending US banks triggered fears of international contagion.
Analysts considered whether Credit Suisse could have sold to a foreign bank, broken up, or wound down in an orderly bankruptcy.
“We were in an extremely fragile environment where we had this banking crisis in the United States and enormous nervousness in financial markets in general,” Jordan said.
He said any outcome other than the UBS takeover would not have stabilised the situation.
Instead, it would have created “enormous uncertainty and would then also put the Swiss financial system, including the Swiss economy, in jeopardy – but not only Switzerland. It could also be then the trigger of a bigger, larger global financial crisis.”
Swissmem, the national association representing the engineering industry, voiced concern about the risks of having only one major Swiss bank with the skillset for exports, and about the repercussions on costs without an alternative to UBS.
Some are also worried about the choice in mortgages, with Credit Suisse and UBS both players in retail banking.
The Competition Commission, however, had no say in the takeover. It confirmed yesterday that it will only give an advisory opinion to Finma. – AFP, March 24, 2023
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