Thomas Jordan, President of the Swiss National Bank, is convinced that the crisis at Credit Suisse Group AG is evidence of the need to change the rules of regulation to apply the norm on the obligation of financial institutions to have a sufficient amount of available assets at any time.
A lender caught in a crisis was unable to provide sufficient collateral in exchange for liquidity. For this reason, in March, the Swiss government was forced to draft emergency legislation allowing the central bank to assist.
Thomas Jordan on Friday, April 28, said that the regulations should be finalized in such a way that in the future it will become a mandatory requirement for financial institutions to constantly have a certain amount of assets that they can pledge or transfer at any time and without any restrictions.
The central bank has agreed to provide a maximum of 200 billion francs ($224 billion), which is approximately 25% of the annual volume of the Swiss economy, as unsecured liquidity assistance. Half of these funds were guaranteed by the government, the SNB received the status of a preferred creditor for the rest of the amount.
Thomas Jordan said that the central bank provided liquidity because the restoration of counterparties’ confidence in Credit Suisse depended on the speed of actions. He also noted that the factor of the speed of decision-making and implementation, in this case, was of particular importance for stopping the outflow of client funds.
The head of the SNB said that the takeover of UBS Group AG through the mediation of the government, which made it possible to stop the crisis, means the need to ensure a level of competition sufficient to conduct monetary policy. He also promised to ensure that due attention is paid to this issue during the discussion on the future of the Swiss banking sector.
The central bank has revealed about 112 billion francs ($124 billion) of secured loans and borrowings under the emergency law, which includes Credit Suisse’s liquidity assistance. The financial institution also reported a quarterly profit of 26.9 billion francs ($30 billion) after a record loss of 132.5 billion francs ($147.8 billion) last year.
Speaking at the annual general meeting of shareholders, Barbara Jan Steiner, head of the supervisory authority of the central bank, said that it is of particular importance for a financial institution to have a sufficient stock of equity. She noted that the SNB can fulfill the mandate with negative capital, but this situation is fraught with reputational losses. According to her, dividends will be paid to shareholders immediately after receiving sufficient profit. Then payments to the Swiss Government and the cantons will be resumed.
As we have reported earlier, Credit Suisse Reveals Scale of Bank’s Bankruptcy.