Swiss National Bank Calls for Stronger Banking Regulations in Wake of Credit Suisse Crisis

The Swiss National Bank (SNB) has released its 2024 Financial Stability Report, highlighting the need for significant regulatory reforms in the wake of the Credit Suisse crisis. The report, which comes just over a year after UBS's acquisition of Credit Suisse, outlines several key areas where the Swiss banking regulatory framework requires strengthening.

Capital Requirements Under Scrutiny

A major focus of the proposed reforms is on capital requirements. The SNB supports the Federal Council's view that the regulatory architecture needs adjustment to ensure that reported capital ratios accurately reflect a bank's true loss-absorbing capacity. Specific recommendations include:

1. Strengthening Additional Tier 1 (AT1) instruments to ensure timely suspension of buybacks and coupon payments following sustained losses.
2. Enhancing the prudent calculation of Common Equity Tier 1 (CET1) capital, including adjustments for assets likely to lose value during restructuring.
3. Bolstering the capital regime for parent banks, particularly regarding the treatment of participations in subsidiaries.

The Credit Suisse crisis exposed weaknesses in current liquidity requirements. The SNB supports a review of the Liquidity Coverage Ratio (LCR) by the Basel Committee on Banking Supervision, noting that actual liquidity outflows during the crisis were much faster and larger than assumed in the LCR calculations.

The report also recommends that banks be required to prepare an adequate volume of eligible collateral for obtaining emergency liquidity assistance from central banks. This proposal aims to address the limitations faced during the Credit Suisse crisis, where insufficient preparations hindered the provision of emergency liquidity.

The SNB backs the Federal Council's proposals to expand early intervention tools and strengthen recovery planning for systemically important banks. This includes incorporating market-based and forward-looking indicators to enable more timely stabilization efforts.

The report provides an update on UBS's integration of Credit Suisse, noting that the bank is on track to meet estimated future capital requirements under the 'too big to fail' regulations. However, the SNB stresses the importance of addressing the weaknesses in the current capital regime, particularly at the parent bank level.

Looking Ahead

As regulatory discussions continue both nationally and internationally, the SNB emphasizes the need for consistent implementation of these proposed measures. The bank will participate in ongoing deliberations, with the aim of strengthening the resilience and resolvability of Swiss banks in times of crisis.

This comprehensive set of regulatory reforms represents a significant shift in Swiss banking oversight, directly addressing the vulnerabilities exposed by the Credit Suisse crisis. As the financial sector adapts to these proposed changes, the effectiveness of new liquidity provisions for systemically important banks will be reviewed by the end of 2026.

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