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In a statement on Tuesday morning, Finma said it had suspended its annual approval of UBS’s resolution strategy — commonly known as its “living will”, which banks have to draw up in case they run into difficulties — and called on the bank to improve its existing plan.
“Based on the experience of the Credit Suisse crisis, additional options for action are required to further strengthen crisis preparations and resolution planning for systemically important banks,” the regulator said.
Large banks are required to provide their regulator with regular living wills, which set out how they could be wound down safely to limit contagion in the market and prevent state bailouts if they run into trouble.
Finma requires the banks it supervises to submit plans annually, which it shares with the Financial Stability Board, the international body that monitors risk in the global financial system.
“UBS’s resolution planning must be further developed in order to increase the options for action available if there is a risk of insolvency,” Finma said.
The regulator said the plan needed to show how UBS could sell or wind down individual businesses — as well as the entire bank — without jeopardising stability in the financial system or requiring taxpayer money to support resolution.
Finma is requiring banks to take a greater interest in liquidity — especially how quickly customers can pull out their savings — and the impact of social media and digital banking on outflows, according to people familiar with the regulator’s thinking.
Credit Suisse suffered from rumours about its impending demise circulating on social media six months before its eventual collapse, which led to customers around the world withdrawing billions of dollars of deposits, contributing to its decline.
Switzerland is in the middle of a wide-ranging postmortem of Credit Suisse, whose collapse last year was the most significant bank failure since the 2008 financial crisis.
The government and regulator are considering a range of measures to improve stability in the Swiss financial system, whose reputation was rocked by Credit Suisse’s fall.
The measures include beefing up Finma’s powers and imposing more capital requirements on UBS, which is the country’s last remaining significant global bank.
“UBS has a sustainable business model with a total loss absorbing capacity of around $200bn,” the bank said in response to Finma’s statement.
“The experience of the Credit Suisse crisis and the rescue by UBS now require the further development of resolution planning in order to expand existing plans in a targeted manner. UBS has already started this work.”
Credit Suisse’s recovery plans were never put to the test as the Swiss state leaned on UBS to rescue its former domestic rival in a controversial deal that involved wiping out $17bn of debt.
