The Swiss National Bank stated on Thursday that further strengthening of financial regulation in Switzerland is needed after UBS's acquisition of Credit Suisse, particularly in capital and liquidity requirements.
Last year, Credit Suisse collapsed due to a series of financial issues and was subsequently acquired by rival UBS through a government-led bailout. This event raised concerns about the potential risks the expanded UBS might pose to the Swiss economy and prompted the government to propose stricter "too big to fail" banking regulations in April this year.
At the core of this plan is the recommendation for UBS to hold more capital, but these suggestions will still need to go through a lengthy political process.
In its annual financial stability report, the Swiss National Bank expressed agreement with the Federal Council's view on taking action in the areas of capital requirements, liquidity requirements, early intervention, and recovery and resolution plans.
The report pointed out that the crisis at Credit Suisse exposed weaknesses in the regulatory framework. Although the capital situation of the merged UBS parent company is stronger than that of the pre-crisis Credit Suisse parent company, the weaknesses of the current system still exist and need to be addressed.
The Swiss National Bank particularly supports the implementation of the government's proposals in three areas of capital regulation.
Firstly, the stabilizing role of Additional Tier 1 (AT1) capital instruments in the ongoing operations of banks needs to be strengthened. AT1 bonds serve as a buffer when a bank’s capital level falls below a certain threshold.
