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Switzerland Set to Unveil Long-Awaited Banking Regulation Proposals Amid Global Systemic Risk Concerns
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The Swiss government is on the verge of unveiling a comprehensive overhaul of its banking regulations, marking a significant shift in the country’s approach to financial oversight following last year’s collapse of Credit Suisse. The proposed legislation, expected to be announced in the coming days, aims to address key pillars of bank oversight, including capital and liquidity rules, as well as governance controls.
Strengthening Finma
UBS Group AG, Switzerland’s sole remaining globally-systemic bank, will come under increased scrutiny as part of the reforms. A key aspect of the revamp will be strengthening Finma, the country’s banking watchdog, which was criticized for its inability to prevent Credit Suisse’s downfall and threaten Switzerland’s reputation for financial stability.
New Chief Executive at Finma
Stefan Walter, a veteran European bank supervisor with over a decade of experience at the European Central Bank, has been appointed as Finma’s new chief executive. Walter played a key role in building out the ECB’s oversight arm during the sovereign debt crisis and has helped develop a system that challenges banks on their risk-taking practices.
Shift from Consensual Approach
The Swiss banking sector has traditionally favored a more consensual approach to financial oversight, but the rapid evaporation of confidence in Credit Suisse following a string of missteps and losses has dented this consensus. Finma itself has complained that its appeals for change were ignored before the bank’s collapse.
Key Reforms
- A senior managers regime, making individuals directly responsible for their decisions
- Specific provisions for bonuses, allowing Finma to influence bonus pool decisions at large banks
- Two stress tests on UBS’ balance sheet this year
Capital and Liquidity Requirements
A debate is emerging about the adequacy of existing capital and liquidity requirements given UBS’s systemic importance. The SNB has called for a review of capital rules according to size and a revamp of liquidity rules, which were shown to be inadequate during Credit Suisse’s crisis.
Aims and Concerns
The proposed reforms aim to address lessons learned from the collapse of Credit Suisse and prevent similar failures in the future. However, some experts argue that the measures may not be necessary, citing Switzerland’s strong financial system and the fact that one of its systemic institutions came close to failure but did not trigger a global financial crisis.
Note: The proposed reforms are expected to be announced in the coming days, so this article will continue to be updated with any new developments.