Finma is Unsure About the Emergency Plans of Two Swiss Systemic Banks

Finma is Unsure About the Emergency Plans of Two Swiss Systemic Banks

The financial regulator of Switzerland, Finma, is unsure about the emergency plans of two of the five major systemic banks in the Alpine nation. The assessment refers to a period before the rescue of Credit Suisse by UBS when the regulator viewed the preparedness of the troubled banking giant in positive terms.

ZKB and PostFinance Lack Adequate Reserve Capital

Reuters has reported that the Swiss Financial Market Supervisory Authority (Finma) considers the crisis plans of two main banks in Switzerland as grossly inadequate. The regulator appears uncertain about Zürcher Kantonalbank (ZKB) and PostFinance's ability to survive a crisis.

Finma stated in an announcement on Wednesday that ZKB lacks adequate reserve capital and is not ready with an emergency plan to counter a crisis, while Postfinance "must realign its emergency recapitalization strategy."

ZKB and PostFinance are among the top five "systematically important banks," along with Credit Suisse, UBS, and Raiffeisen. The assessment is based on their crisis plan preparedness documents submitted in 2022 and evaluated at the end of the year. It does not take into account the merger of Credit Suisse and UBS.

Credit Suisse shares dropped to a record low in mid-March amid a loss of investor confidence. The bank borrowed USD 54 billion from the Swiss National Bank, and UBS came to its rescue with a state-backed acquisition proposal. However, Finma had viewed its emergency plan as ready to implement last year.

Important Lessons from the Credit Suisse Crisis

Finma CEO Urban Angehrn commented that the events at Credit Suisse are a learning curve for preparing for eventual crises. "The authorities had options on the table with the restructuring plan and the emergency plan that did not exist 10 years ago," he pointed out while also emphasizing:

"It is clear that there are important lessons to be learned from the Credit Suisse crisis for future crisis preparations."

Angehrn has insisted that Finma will continue to pursue its objectives. His statements follow after the regulatory body rejected accusations of problems at the second-largest bank in Switzerland. The representatives have insisted that their reaction has been quick and have demanded even more powers.

The Finma resolution report mentions for the first time that Raiffeisen’s emergency plan met its requirements for performing critical functions, although it was facing the risk of insolvency. "Raiffeisen can provide sufficient capital to be recapitalized and continue in the event of a crisis," Finma has concluded.

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