What is feared in Switzerland about Credit Suisse and Ubs
“No one really knows what is in Credit Suisse's books,” warns Carlo Lombardini, a professor at the University of Lausanne. Here are comments, analyzes and questions from Swiss newspapers on UBS's bailout of the bank. The deepening of Teo Dalaveracuras
The good news is that, at least in Switzerland, there are still newspapers.
In the press conference that began at 7.30 pm on Sunday 19 March, Father's Day, the funeral was celebrated in the federal government building in Bern of the oldest and – if one can say – antonomastic large Swiss bank, not surprisingly called Credit Suisse , in the acronym CS (Credito Svizzero in Italian and Schweizerische Kreditanstalt in German, but the French version is the one in use; indeed it was, since we are talking about a deceased).
Officiating, the current president of the Federal Council Alain Berset, the Minister of Finance Karin Keller-Sutter, the president of the Swiss National Bank Thomas Jordan, the president of FINMA (the financial market supervisory authority, a sort of Swiss Consob) Marlene Amstad, the president of Credit Suisse Axel Lehmann and finally the president of UBS Colm Kelleher.
Brief interventions and at the end some answers to the questions of the not very numerous invited journalists: a composed ceremony, as befits a country that does not like emphasis and strong colours, at least in public life. The message was nothing other than the sober exposition of the terms of the final solution identified for a crisis of confidence that was no longer manageable, the purchase of the entire capital of CS, the second Swiss bank, by the first, UBS. For the immediate execution of the sale, the federal government prepared an emergency regulatory framework which gave the respective boards of directors the power to deliberate the transaction, without the need for any decision by the shareholders' meetings. An operation which – underlined Chairman Berset – both the government, the issuing institution and the supervisory authority had approved with great conviction (thus suggesting that they had essentially imposed it), with the evident though undeclared purpose of ensuring the broader political-institutional coverage to the administrative bodies of the two banks involved. It was reiterated that the operation was due to the need to prevent the risk of destabilization not only of the Swiss financial market but also and above all of the international one, that the solution identified had been shared with the monetary authorities of the United States and the United Kingdom and that there was no other way to deal with the crisis in the very short time allowed. Finally, with heroic contempt for ridicule, it was said and repeated that the operation was a transaction between two private parties.
It was said of the Swiss press. Even without the large letters that usually make up for the paucity of content in our local newspaper, Monday's Neue Zürcher Zeitung had the opening headline "The Confederation and the National Bank save Credit Suisse". Beside the comment: "A zombie disappears but a monster is born", which signals the risk that UBS is about to become almost an executive body of the state.
Corriere del Ticino chooses a more evocative opening title ("Once upon a time there was Credit Suisse") amply justified by the bank's role in the industrialization process of Switzerland starting from the second half of the 19th century, and entrusts an interview with Carlo Lombardini the critical analysis of the takeover of the CS by Ubs. Lombardini, a leading lawyer at the Geneva bar and professor at the Faculty of Law and Criminal Sciences at the University of Lausanne, specializing in banking law, doesn't send them to say. "The worrying thing", he explains, "is that no one really knows what is in Credit Suisse's books", and it is precisely this "worrying thing" that explains UBS's initial reticence to commit to the operation, a reticence that was also overcome with the allocation of 9 billion public money to cover any contingent liabilities that may arise ("economic and legal risks that derive from a different corporate culture (…) which pushes the appetite for risk a little further than that of the sector" Lombardini calls them).
Up to here we are in the ambit of the technician, but the criticism of the Genevan scholar goes further. First of all, he points out that in addition to the flight of depositors there was a different reality: "The other international banks no longer trusted it ( the CS, ed. ) and avoided it as a counterparty". In such a compromised situation – it seems to be understood – the CS management should have acted more decisively when it announced a recovery plan four months ago: “Basically, it is the lack of more severe decisions that has led Credit Suisse to that which is today. It is very sad because this will translate into even more serious job cuts. A real bloodbath."
It will take time to process this mourning, if at all. We already hear about more stringent regulations but upstream there could be a quality problem of the work of the regulatory and supervisory bodies. “Multiplying the rules”, Lombardini objects, “doesn't protect us from incompetence. Furthermore, rules that risk transforming financial supervision into mere legal and bureaucratic control”.
Perhaps this is the crucial question, which goes beyond the very serious but still circumscribed episode of Credit Suisse. For nearly sixty years, from the 1930s to the 1990s, banking in much of the capitalist world was governed by the objectively simple principle, codified in the Glass Steagall Act, of the separation of the ordinary credit bank from the investment. Then with liberalization came the 2008 financial crisis and the eight thousand pages of the Obama administration's Dodd Frank Act . What happened next is difficult to decipher because market operators found themselves acting in a context of uninterrupted and growing demand for financial instruments and free money. Now the return of interest expense presents the account to operators with an excessive "appetite for risk" and suggests a limited effectiveness of banking supervision. Thinking of new rules right away can be misleading and therefore dangerous, because the existing ones already don't seem to have worked. The Credit Suisse crisis has been dragging on for years but neither the supervisory authority nor the central bank have even managed to control it, they are not said to prevent it: if even today "no one knows exactly what is in Credit Suisse's books", it means that in the last two years – ever since the CS crisis, which proved to be terminal, was full-blown – it has wanted or been able to look inside these accounting books, and this can only be explained in two ways: either the law makes it de facto impossible these controls, or the personnel of the supervisory authority is at the level of the station master in Larissa.
The question is very simple: is the ruling class of Western countries capable of formulating rules that work or is it only able to produce nominally normative texts, which have the prevalent function of entertaining public opinion and not irritating vested interests, creating a surplus of burdens and formal obstacles for the only class that is unable to make its voice heard, that of the citizens?
Put another way, are contemporary governments capable of producing effective legislation as effective as the Glass Steagall Act was in its day? Are they incompetent or are they too weak to enforce effective regulation? Are supervisors staffed to the quality required by their tasks?
Surely, it's not by treating every private citizen who ventures to open a bank account like a potential mafia godfather that bank cracks are avoided.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/ubs-credit-suisse-svizzera/ on Tue, 21 Mar 2023 09:28:27 +0000.