Global Banking Oversight Body Downplays Need for Change after Credit Suisse Debacle
Introduction
A global body responsible for banking oversight has issued a report dismissing the necessity for an overhaul of international rules following the recent Credit Suisse rescue. Despite the bank’s troubles, the Financial Stability Board (FSB) concluded that the existing framework, established over 15 years ago after the global financial crash, successfully prevented a major crisis.
Background
The FSB, composed of central bankers, regulators, and officials from the world’s leading economic powers, examined the reasons behind the Swiss authorities’ decision to support a takeover by UBS instead of utilizing the “resolution” mechanism designed for failing banks. The report highlights that the resolution rules, which aim to prevent panic in financial markets, could have been applied to Credit Suisse if necessary, albeit with some reliance on public funds.
Effective Framework
The FSB stated that recent events demonstrate the effectiveness of the international resolution framework. It provided the Swiss authorities with a viable alternative for resolving the crisis, confirming the soundness of the existing rules. The report suggests that rather than making substantial changes, enhancements in the application of the rules might be more suitable.
Controversial Deal
While the FSB’s report supports the resolution framework, it contradicts the criticism faced by Switzerland for facilitating UBS’s takeover of Credit Suisse. The failure of Credit Suisse, once a symbol of Swiss financial strength, surprised Swiss officials and regulators who had struggled with the bank’s numerous scandals. The report acknowledges that Switzerland’s action preserved financial stability, but raises questions about why the resolution approach was not chosen.
Lessons Learned
According to the FSB, the Swiss case highlights the need for an adequate public sector backstop to effectively implement the resolution rules. This could include support from central banks, deposit insurance funds, or fiscal lending. The report also emphasizes the importance of better preparation for bank runs caused by the availability of round-the-clock payments, mobile banking, and social media.
Conclusion
The FSB’s report offers reassurance that the international resolution framework, established after the 2008 financial crash, remains effective in preventing major banking crises. While some improvements in the application of the rules may be necessary, the report supports the existing framework and dismisses the need for significant changes.
