San Francisco Frontiers - IMF urges Swiss to strengthen bank resilience

The IMF said the Swiss Financial Market Supervisory Authority (FINMA) ought to be able to intervene early to detect and address bank failures, including having the power to impose fines, conduct on-site inspections, or intervene to improve risk management.

"Enhanced legal powers and resources for FINMA are critical to strengthening the effectiveness of supervision," the IMF said as it presented the findings of an analysis of the Swiss financial sector.

Credit Suisse, Switzerland's second-biggest bank, was among 30 international banks deemed too big to fail due to their importance in the global banking architecture.

But it imploded in March 2023, with the Swiss government, the central bank and FINMA strongarming the country's biggest bank UBS into a quickfire $3.25-billion takeover.

The government feared Credit Suisse would have rapidly defaulted and triggered a global banking crisis that would also have shredded Switzerland's valuable reputation for sound banking.

The government set about tightening regulations in the banking sector -- in particular to ensure that UBS can withstand a crisis, given the size of the megabank now, in relation to the Swiss economy.

Last month it unveiled its proposals, which included strengthening FINMA's powers and significantly increasing the capital that UBS will have to set aside for its foreign subsidiaries -- much to the bank's displeasure.

This could amount to nearly $18 billion of additional capital.

However, UBS argued that these requirements -- which are much more onerous than those in other countries -- risked putting it at a disadvantage compared to its competitors abroad.

The reforms, aimed at reducing the risks for the state, taxpayers and the economy, "would further strengthen the long-term stability of the Swiss financial centre", the IMF said.

The IMF found the Swiss financial sector would be broadly resilient in the event of a severe shock, but nonetheless needed strengthening given the current climate of high uncertainty in the global economy.

"Switzerland continues to benefit from strong fundamentals, highly credible institutions, and a skilled labour force, positioning it among the world’s most competitive, resilient, and innovative economies," the IMF said in a statement.

Nonetheless, it faces challenges from "persistent safe-haven pressures" and the appreciation of the Swiss franc currency, it said.

J.Scott--SFF