Even those on the periphery are feeling the heat from the banking stability measures. Stefan Mäder, President of the Swiss Insurance Association, referred to it as a partial success during the «Insurers Day» at the end of June 2024 in Bern.

For the insurance industry, the second-largest player in Switzerland's financial sector, success came in the form of being scarcely mentioned in the 339-page report, with the vast majority of measures having minimal impact on them. «But we must remain vigilant,» emphasized Mäder. The fear of being inadvertently affected remains prevalent.

Broadside from Sergio Ermotti

Following the Credit Suisse debacle, the Federal Council commissioned a report on how to address gaps in the Too-Big-To-Fail regulation. The Swiss Financial Market Supervisory Authority (FINMA) and the Swiss National Bank (SNB) were closely involved in the process. In late April 2024, Finance Minister Karin Keller-Sutter presented the findings: the government recommends implementing 22 measures and will review seven additional ones.

Since then, UBS CEO Sergio Ermotti has relentlessly criticized the plans of the Department of Finance led by Karin Keller-Sutter at every opportunity. For obvious reasons: the proposed measures disproportionately affect the combined major bank.

From Courage to Fear

Switzerland showed strength and courage during the weekend of March 19, 2023. The government, regulatory authorities, and UBS acted decisively to prevent serious consequences for the financial world and the economy, preserving Switzerland's reputation.

«However, looking at the debates today, I see more fear than courage. Many only see the risk posed by a major bank in our country,» he lamented in mid-June during a lecture at the Swiss Institute for Economic Policy Research at the University of Lucerne.

The following points are particularly controversial:

1. Higher Capital Requirements

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The main point of contention: the higher capital requirements. The government's plans propose a significant increase. For UBS, this will be substantial. Estimates suggest an additional $10 to $15 billion dollars in CET1 capital over the coming years; the Common Equity Tier 1 Ratio measures a bank's resilience.

UBS refuses to accept this, as reiterated by CEO Sergio Ermotti in recent weeks. «We should not conclude from the downfall of Credit Suisse that the sole remaining major bank should pay the price for others' failures and be punished for its global significance,» he stated in Lucerne.

Market Confidence Lost

This argument is not unfounded. Based on current information, it appears that Credit Suisse did not collapse due to insufficient capital but rather due to losing market confidence. Moreover, Swiss requirements already align with international standards and are comparably stringent with other financial centers. With the introduction of «Basel III Final» from 2025, these requirements will become even stricter.

Even the strictest capital requirements cannot prevent a loss of trust. As Isaac Newton put it, «I can calculate the motion of heavenly bodies, but not the madness of people.»

2. Introduction of the Senior Managers Regime

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In cases of mismanagement, individuals may face stronger accountability measures in the future. The Federal Council proposes the introduction of a «Senior Managers Regime» for systemically important institutions, establishing it as an explicit organizational requirement at the legislative level.

Key aspects include clear allocation of responsibilities. Breaches of duty could result in internal penalties by the bank itself (such as a reduction in variable compensation) or regulatory sanctions such as professional or activity bans, or withdrawal of authorization.

Additional Risk Premium

Furthermore, corporate governance requirements in financial market law are to be specified more concretely. This includes accountability for corporate culture and various proposals for sanctioning misconduct.

A «Senior Managers Regime» is welcomed from a customer perspective as it builds trust. However, there are doubts about whether clear assignment of responsibilities is feasible and whether the measure might ultimately lead to higher salaries for top managers who seek additional «risk premiums» for further security. It's also questionable why such a regime should only apply to systemically important institutions.

Currently, FINMA has the authority to impose professional bans or other measures against individuals. However, in supervisory practice, especially with large institutions, proving specific rule violations by individuals can be challenging.

3. Fines and Publication of Enforcement Proceedings

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FINMA aims to be able to impose fines in order to strengthen the governance of banks in the future. «In addition to interventions at the organizational and operational levels, FINMA has so far lacked a punitive instrument to sanction Credit Suisse based on culpability for the increasing violations, thereby sending a corresponding signal to the bank's management, employees, as well as shareholders,» it writes in its report on the lessons from the Credit Suisse crisis.

In this context, FINMA also calls for the ability to publish enforcement proceedings.

Ineffective Interventions

FINMA already has the authority to impose fines today. However, it is questionable how the collapse of Credit Suisse could have been prevented by imposing fines.

The downfall of Credit Suisse has highlighted the challenges in implementing such regulations at times. As repeatedly heard from financial circles, FINMA regularly engaged with Credit Suisse. However, its interventions proved ineffective because they were not taken seriously or were ignored internally by Credit Suisse. Instead, both parties engaged in legal back-and-forth, yielding little progress.