
SNB considers restricting size of Credit Suisse and UBS
The SNB said in its latest financial stability report that, as a result of the two banks' market share and their balance sheet size in comparison with the country's gross domestic product (GDP), the question of whether a bank can be 'too big to fail' is "particularly relevant" in Switzerland.
The central bank is looking at ways to address this problem. In 2008 it heavily intervened in the banking sector, offering capital assistance and liquidity programmes. However, according to Philipp Hildebrand, vice-chairman of the bank's board, "although the measures taken so far in this area are heading in the right direction, some of them do not yet go far enough".
The bank said it is now considering "alternative approaches" to managing system-wide risks. One suggestion is that the "root cause" of the problem - the size of the institutions - should be tackled. Measures that put a direct cap on the size of banks, by setting a limit on their market share or on their balance sheet to GDP ratio, are "conceivable".
However, SNB said it will also consider "indirect incentives" to reduce systemic concerns. Under this umbrella, systemically important financial institutions could be required to hold especially large capital and liquidity buffers - capital requirements based upon a firm's size should "reduce a bank's incentive to inflate its balance sheet without restraint", Hildebrand commented.
Introducing into the regulatory framework a plan for winding down important financial institutions in a crisis would be a final option. However, SNB considers this option "almost impossible" without an internationally co-ordinated agreement.
Systemic risk has grabbed the attention of regulators in many other jurisdictions following the fall of Lehman Brothers and the near-collapse of American International Group in September last year.
On June 17, Mervyn King, governor of the Bank of England, voiced concerns in a speech at the annual Lord Mayor's banquet in London. "If some banks are thought to be too big to fail, then, in the words of a distinguished American economist, they are too big. It is not sensible to allow large banks to combine high-street retail banking with risky investment banking or funding strategies, and then provide an implicit state guarantee against failure," he said.
"Either those guarantees to retail depositors should be limited to banks that make a narrower range of investments, or banks which pose greater risks to taxpayers and the economy in the event of failure should face higher capital requirements, or we must develop resolution powers such that large and complex financial institutions can be wound down in an orderly manner. Or, perhaps, an element of all three," he continued.
See also: Can the centre hold?
Questions raised over possible systemic risk regulations
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Regulation
SEC may lack legal clout to impose new dealer rule – Citadel
Adoption of quantitative dealer definition may require congressional changes to US Securities Exchange Act
US Basel endgame hits clearing with op risk capital charges
Dealers also fret about unlevel playing field compared with requirements in the EU
CFTC’s clearing house recovery rule splits industry
Some fear CCPs will fast-track recovery, others say any rule book will be ignored in emergency
EU banks ‘will play for time’ in stand-off over India’s CCPs
Lawyers say banks are unlikely to set up subsidiaries and will instead pin hopes on revised Emir fix
ECB mulls intervention on uneven banking book reporting
Inconsistency among EU banks on whether deposits and loans are in scope for credit spread risk
Iosco warns of leveraged loan ‘vulnerabilities’
As recovery rates plummet, report calls for clearer covenants and more transparency on addbacks
Narrow path to compromise on EU’s post-Brexit clearing rules
Lawmakers unlikely to support industry demand to delete Emir active accounts proposal altogether
The Fed’s stress test models are inaccurate. Something has to change
First step for US regulator to improve its bank loss forecasts would be to open up its models to public scrutiny, argue two banking industry advocates