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Written by Stefania Spezzati and Oliver Hart
LONDON/ZURICH (Reuters) – A year on from the banking crisis that devastated Credit Suisse, authorities are still warning lenders are vulnerable, including in Switzerland, where the bank’s takeover by rival UBS created a behemoth. We are considering ways to resolve the issue.
The Swiss government-backed Credit Suisse-U.S. bank salvage rescue in March 2023 quelled the immediate fire caused by a run on little-known U.S. regional lender Silicon Valley Bank.
But regulators and lawmakers are only just beginning to consider how banks can be more resilient to deposit runs and whether they need to make it easier to access cash in emergencies.
The head of the world’s financial watchdog recently warned that Switzerland needs to tighten banking regulations, highlighting the risks to the financial system from the collapse of UBS, now one of the world’s largest banks.
“The banking system is never secure,” says Roberts, a professor at Stanford University’s Graduate School of Business and co-author of the book “The Banker’s New Clothes: What’s Wrong with Banking and What to Do About It.” Anat Admati says.
“Global banks can cause significant damage,” she added.
Rules introduced after the 2008 financial crisis did little to stave off last year’s crash, as customers withdrew cash from banks at unprecedented speed.
One of the key weaknesses that emerged last year was that banks’ liquidity requirements were found to be inadequate. Credit Suisse saw its once-comfortable cash buffer depleted as billions of dollars in deposits were drained within days.
Introduced after the 2008 financial crisis, the so-called liquidity coverage ratio (LCR) has become an important indicator of banks’ ability to meet their cash needs.
LCR requires banks to hold sufficient assets that can be exchanged for cash to withstand significant liquidity stress for 30 days.
European regulators are debating whether to shorten the period of acute stress to measure the buffer banks need over a shorter period of time, say one or two weeks, according to people familiar with the discussions. ing.
The move would echo the arguments of Michael Hsu, the acting U.S. Office of the Comptroller of the Currency, who advocated a new ratio to cover five days of stress.
If such measures were introduced, “banks would have to hold more liquid assets and park more assets with the central bank,” said the managing director of regulation at the Washington-based Institute for Banking and International Finance.・Director Andres Portilla says: lobby group. “The end result could be higher financing costs.”
The person told Reuters that industry-wide changes in Europe are likely to take place next year as banks continue to work towards the final implementation of post-crisis rules, so-called Basel III. told Reuters. .
Another person familiar with the discussions told Reuters that the European Central Bank had decided to reduce banks’ liquidity buffers amid concerns that a repeat of the rapid oversupply could threaten other banks. We are strengthening our scrutiny of
The ECB declined to comment for this article. It has identified liquidity supervision as a priority after the Credit Suisse rescue.
huge banking industry
In Switzerland, regulatory debate is focused on how to make emergency financing more widely available.
When borrowing from a central bank, lenders must provide certain assets, also known as collateral, in exchange, which must be easy to price and sell on financial markets. This protects taxpayers if the lender is unable to repay.
Credit Suisse has suffered unprecedented outflows, running out of securities to pledge to the Swiss National Bank (SNB) and forcing the central bank to provide unsecured cash to struggling lenders.
The expert group is calling on the Swiss central bank to accept a wider range of assets, including corporate loans and securities-backed loans.
The Swiss National Bank said the range of eligible collateral is being continuously considered and developed in dialogue with banks.
A UBS spokesperson declined to comment.
UBS’s balance sheet is more than $1.6 trillion, almost twice the size of the Swiss economy, and the country has also prompted a review of the Too Big to Fail Rule, a set of regulations that govern systemically important banks. There is.
Peter Hearn, emeritus professor of banking and finance at the London Institute of Banking and Finance, said: “All systemically important banks in the country and around the world have become public-private partnerships. No government can risk bank instability. ” he said.
The Swiss government is expected to release a report next month. Some analysts have warned that UBS may announce stricter capital requirements.
UBS Chief Executive Sergio Ermotti said this week that the possibility could not be ruled out.
“We only solved the problem in the short term,” said Cedric Till, a professor of economics at the Geneva School of International Development who sits on the board of the Swiss National Bank. It became a stepping stone for the Oversight Committee until last year.
“UBS has become too big to save.”
Amid fears of a repeat in 2023, the ECB has asked some financial institutions to monitor social networks to detect runs early. Global financial regulators are expected to release a “detailed investigation” later this year into how social media accelerates deposit outflows.
“Deposit runs don’t happen in a month, they happen in hours,” said Xavier Vives, professor of economics and finance at IESE Business School in Barcelona. “The regulations need to be revised,” he said.
(This story has been reedited to remove repetition of paragraph 7)
(Reporting by Stefania Spezzati in London and Oliver Hart in Zurich; Additional reporting by John O’Donnell in Frankfurt, Jesus Aguado in Madrid and Noele Illien in Zurich; Editing by Elisa Martinuzzi and Susan Fenton)
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