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The Swiss finance minister publicly warned about the need to consider the risk of big bank failures.

TraderKnows
TraderKnows
06-05

Recently, the Swiss Finance Minister addressed the issue of major bank bankruptcies, stating that such situations must be closely monitored.

Swiss Finance Minister Karin Keller-Sutter stated on Wednesday that international financial authorities must consider the legal risks stemming from the potential bankruptcy of global banks.

In an interview with the Frankfurter Allgemeine Zeitung, Keller-Sutter was asked whether there needs to be a unified international approach to handling rules for "too big to fail" banks to enable the liquidation of such institutions.

Keller-Sutter mentioned that she is in contact with the Financial Stability Board, an organization responsible for monitoring the global financial system, as well as other finance ministers, including Germany's Finance Minister Christian Lindner. She plans to meet with Lindner in Berlin.

She said, "I want to draw attention to the fact that sometimes it may not be feasible to liquidate a bank due to international legal risks. This was evidently a risk in the case of Credit Suisse."

"There are significant doubts as to whether capital restructuring through forced creditor participation, known as 'debt-to-equity conversion,' is feasible," Keller-Sutter added.

"My primary concern is the United States. Large banks have significant investments in the U.S. Therefore, U.S. regulatory authorities must agree to the liquidation."

She noted that this risk management is the reason why the Swiss government requires systemically important banks to provide up to 100% equity support for their overseas subsidiaries.

"The equity support for foreign subsidiaries must be substantial enough so that they can be sold or liquidated during a crisis without jeopardizing the Swiss parent company. This is precisely the issue with Credit Suisse," she explained.

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