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Writer's pictureJerry Garcia

UBS Ordered By Swiss Regulator To Enhance Emergency Plans Amidst Increased Risks

The Swiss financial regulator, Finma, has mandated UBS to strengthen its emergency and recovery plans following the heightened risks associated with its acquisition of Credit Suisse last year. This directive comes as part of a broader effort to ensure the stability of the Swiss financial system in the wake of significant banking turmoil.

Key Takeaways

  • Finma has suspended UBS's annual approval of its resolution strategy, known as its "living will.

  • The regulator emphasizes the need for improved crisis preparations and resolution planning for systemically important banks.

  • UBS is currently integrating Credit Suisse, which collapsed last year due to scandals and financial losses.

  • The regulator is focusing on liquidity management and the impact of social media on bank stability.

Background On The Directive

The Swiss financial regulator, Finma, has taken a proactive stance in response to the challenges posed by UBS's recent acquisition of Credit Suisse. The regulator's decision to suspend the annual approval of UBS's resolution strategy highlights the urgency of enhancing the bank's emergency plans. This strategy, often referred to as a "living will," is crucial for outlining how a bank can be safely wound down in the event of financial distress.

The Importance Of Resolution Planning

Resolution planning is essential for large banks to mitigate risks of contagion in the financial market. Finma has mandated that UBS's plans must:

  1. Detail how the bank could sell or wind down individual businesses.

  2. Ensure the entire bank can be managed without jeopardizing financial stability.

  3. Avoid reliance on taxpayer funds during a crisis.

Focus On Liquidity And Social Media Impact

Finma is particularly concerned about liquidity management, especially regarding how quickly customers can withdraw their savings. The regulator has noted the significant role social media played in the downfall of Credit Suisse, where rumors led to massive withdrawals, exacerbating the bank's financial troubles. As a result, UBS must consider the implications of digital banking and social media on customer behavior in its emergency plans.

Broader Implications For The Swiss Financial System

Switzerland is currently undergoing a comprehensive review of the events surrounding Credit Suisse's collapse, which marked the most significant banking failure since the 2008 financial crisis. The government and Finma are exploring various measures to enhance the stability of the Swiss financial system, including:

  • Strengthening Finma's regulatory powers.

  • Imposing stricter capital requirements on UBS, the last major global bank in Switzerland.

UBS's Response

In response to Finma's directive, UBS has acknowledged the need for further development of its resolution planning. The bank stated that it possesses a sustainable business model with a total loss-absorbing capacity of approximately $200 billion. UBS has already initiated efforts to enhance its emergency plans, recognizing the lessons learned from the Credit Suisse crisis.

Conclusion

The Swiss regulator's order for UBS to bolster its emergency plans underscores the ongoing challenges facing the banking sector in Switzerland. As UBS continues its integration of Credit Suisse, the focus on robust crisis management and resolution planning will be critical in safeguarding the stability of the financial system and preventing future crises.

Sources

  • Swiss regulator orders UBS to bolster emergency plans, Financial Times.

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