The Swiss Financial Market Supervisory Authority (FINMA) recently criticized the plans of two of Switzerland’s biggest banks – Zürcher Kantonalbank (ZKB) and Postfinance – to handle a crisis situation. According to a report by FINMA, the emergency plans of these two banks were said to be insufficient for handling a crisis. The banks had submitted their crisis planning documents in 2022, which were evaluated by FINMA at the end of the year, and these evaluations were recently made public. The report stated that ZKB’s emergency plan was not yet ready to be implemented since the bank had not reserved sufficient capital for recapitalization.
Postfinance, on the other hand, must realign its emergency recapitalization strategy, according to FINMA. The regulator is not certain if the two banks will be able to operate in the event of a crisis. These two banks are among Switzerland’s five systematically important banks, along with Credit Suisse, Raiffeisen, and UBS. However, the report does not take into account the recent merger of Credit Suisse and UBS.
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The report comes in the wake of Credit Suisse’s crisis, where shares dropped to a record low, resulting in the bank borrowing $54 billion from the Swiss National Bank. The bank’s state-backed acquisition proposal was approved by UBS. FINMA had considered Credit Suisse’s emergency plan to be ready to be implemented last year. The events surrounding Credit Suisse demonstrate the need for concrete preparations for crises, said FINMA CEO Urban Angehrn. He emphasized that there are important lessons to be learned from the Credit Suisse crisis for future crisis preparations.
The assessment does not bode well for Switzerland’s banking industry, especially since two out of the five major banks were found to be unprepared to handle crises. However, the report did note that Raiffeisen’s emergency plan met FINMA’s requirements for being able to perform critical functions even if the bank was at risk of insolvency. The regulator concluded that Raiffeisen could provide adequate capital to be recapitalized and continue operating in the event of a crisis.
The report further pointed out that systemic risks still exist in Swiss banks, which could pose a threat to financial stability. FINMA has set further requirements for ZKB and Postfinance to improve their crisis plans. The regulator said that it would closely monitor the progress of these banks to ensure that they improve their crisis planning.
In today’s interconnected world, where a crisis in one country can quickly spread to other countries, it is important that every country has strong financial institutions that can withstand crises. Switzerland is home to some of the largest banks in the world, and its banking industry is a significant contributor to its economy. However, the recent report by FINMA highlights the need for these banks to strengthen their crisis plans to ensure that they are adequately prepared for any potential crisis in the future.
The banking industry plays a crucial role in any economy. A strong banking system can provide financial stability, access to credit, and promote economic growth. However, a weak banking system can pose a significant threat to financial stability and the overall economy. Switzerland’s banking industry has been going through a tough time, with Credit Suisse’s crisis being a wake-up call for the industry. The crisis has highlighted the need for strong crisis plans in the banking industry to ensure that they are prepared for any potential crisis.
In conclusion, the recent report by FINMA raises questions about Switzerland’s banking industry’s ability to handle crises. The regulator has called on ZKB and Postfinance to improve their crisis plans and will be closely monitoring their progress. The report calls attention to the importance of having strong crisis plans in the banking industry and the need for regulators to monitor banks closely to ensure that they are adequately prepared for the future. The report serves as a reminder of the potential risks posed by the banking industry to the economy and the importance of ensuring its stability.
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