The new regulatory framework foresees, among other things, enhanced powers and generous funding for the National Banking Supervisory Authority (Finma), stricter standards for the capital adequacy and liquidity of credit institutions, but also less flexible criteria for paying “bonuses” to top banking industry executives. The obvious goal is to reduce the credit risk for systemic banks. However, the new framework does not provide more guarantees for the protection of deposits, nor restrictions on the withdrawal of cash to avoid a future bank run.

Presenting the new measures, the Minister of Finance and Vice President of the Swiss Government, Karin Keller-Sutter, emphasized that the highest priority is the protection of the economy and taxpayers. “What happened with Credit Suisse must not be repeated,” the finance minister clarified. “A banking crisis cannot develop into a threat to the national economy. That is why we propose targeted and effective measures. Greater capital adequacy, more liquidity and adequate measures are needed to avoid abuses in the payment of bonuses”.

It’s coming “Public Liquidity Backstop”

In March 2023, the news of the imminent collapse of Credit Suisse shocked Switzerland, but also the international markets, as this particular bank was not only the second largest credit institution in the Swiss market, but also one of the top 30 systemic banks worldwide. Many had expressed concerns about a new Lehmann Brothers-style banking crisis, with unpredictable consequences for the international financial system. Credit Suisse’s involvement in large financial exposures such as the bankruptcy of hedge funds Archegos could not be compensated in the long term even by the provision of emergency financial assistance of 100 billion Swiss francs, in the form of a loan, from the Swiss National Bank (SNB).

The intervention of the Swiss State through an emergency liquidity mechanism, the so-called “Public Liquidity Backstop” was a measure that was discussed at the time, but it could not be easily implemented in the case of Credit Suisse as the necessary legal basis did not exist. With the new regulatory framework, the legislator closes this gap, and establishes the State as a “lender of last resort”. Postfinance, Raiffeisen and ZKB are currently considered “systemic banks” in Switzerland in addition to UBS.

Eventually UBS, Switzerland’s largest bank, forged the necessary bailout and absorbed the faltering Credit Suisse, with government support, in 2023. It was the banking “merger of the century” and probably the only solution to avoid turmoil in international markets. But now new problems are emerging, as Switzerland’s two largest banks are said not to have the same corporate culture, and there is talk of overlapping responsibilities and redundant staff.

Criticism in salaries and boni bank executives

All this does not prevent the head of UBS Sergio Ermotti from collecting a salary of 14.4 million Swiss francs per year. Excessive or fair by market criteria? Finance Minister Karin Keller-Sutter received a related question from reporters, to answer as follows: “These are benefits that go beyond the imagination of an ordinary citizen. I don’t think this development is good…”

A total of 22 measures are foreseen in the new regulatory framework of Bern. These do not include restrictions on the remuneration of bank executives, but specific criteria are provided for the payment of bonuses. “Those responsible for wrong management decisions should be held accountable,” warns the finance minister. “This means that bonuses can be reduced or even refunded, even retroactively…”

Are the new measures enough to restore full confidence in Swiss banks?Zurich’s Tagesanzeiger newspaper claims that both the Swiss Central Bank and the Supervisory Authority (Finma) had requested stricter measures than those finally announced by the finance minister , which she denies. “Many questions remain unanswered”, claims the popular newspaper Blick and warns that, if the measures announced by the finance minister do not work, “Switzerland will pay dearly”.