UBS to Revise Recovery and Emergency Plans Amid Credit Suisse Integration
UBS Group AG, Switzerland's largest bank, is set to overhaul its recovery and emergency plans following the acquisition of Credit Suisse earlier this year. The Swiss Financial Market Supervisory Authority (FINMA) has suspended its annual approval of UBS's recovery and emergency strategies for 2024, citing the need for adjustments to ensure the bank's continued resolvability. The integration of Credit Suisse has introduced new complexities, prompting FINMA to expect UBS to enhance its resolution planning. This move aligns with recommendations from the Swiss Federal Council's "Too Big to Fail" (TBTF) report, which suggests legislative amendments to provide authorities with greater flexibility during financial crises.
Key Takeaways
- FINMA's Intervention: FINMA has paused its annual assessment of UBS's recovery and emergency plans, highlighting the need for revisions due to the Credit Suisse merger.
- Resolution Planning Enhancements: UBS must develop additional strategies beyond its current "going concern" approach, including options to sell or wind down business segments without destabilizing the financial system.
- Regulatory Expectations: FINMA expects UBS to focus on liquidity-generating measures and to incorporate lessons from the Credit Suisse crisis, particularly regarding rapid deposit withdrawals.
- Legal Framework Adjustments: Legislative changes are necessary to ensure new resolution options can be implemented with legal certainty, enhancing the effectiveness of crisis management.
- TBTF Legislation Strengthening: Both FINMA and the Federal Council advocate for reinforcing TBTF rules to better prepare systemically important banks for potential crises.
Deep Analysis
The integration of Credit Suisse into UBS has significantly altered the banking landscape in Switzerland and raised concerns about systemic risks associated with large financial institutions. FINMA's suspension of UBS's recovery and emergency plan approvals underscores the regulator's commitment to ensuring that the bank remains resolvable without resorting to taxpayer-funded bailouts.
The primary challenge lies in harmonizing the merged entities' group structures, processes, and IT platforms. Until these are fully integrated, UBS is relying on manual data aggregation, which is not sustainable in the long term. The bank must automate processes and transfer data to strategic systems to eliminate operational obstacles.
FINMA's emphasis on liquidity-generating measures reflects the lessons learned from the Credit Suisse crisis, where swift digital-era deposit withdrawals exacerbated the bank's troubles. UBS is now expected to adopt more conservative and comprehensive liquidity strategies to withstand similar scenarios.
Moreover, the regulator is pushing for UBS to develop contingency plans that include selling or winding down specific business units. This approach aims to prevent a full-scale collapse that could have far-reaching consequences for the global financial system. Implementing such measures requires not only meticulous internal planning but also supportive legal frameworks to ensure actions can be taken decisively and lawfully during a crisis.
The call for legislative amendments indicates a recognition that existing laws may not provide sufficient tools for regulators to manage large bank failures effectively. By enhancing the TBTF legislation, Switzerland seeks to balance the need for robust financial institutions with the imperative of protecting the economy and taxpayers from systemic risks.
Did You Know?
- "Single Point of Entry" Recapitalization: This is a resolution strategy where losses are absorbed at the parent company level, allowing subsidiaries to continue operating. FINMA believes UBS could currently be resolved using this method.
- Public Liquidity Backstop (PLB): A mechanism that provides liquidity support to banks during resolution. The implementation of PLB is a critical aspect of the proposed legislative changes to strengthen crisis management.
- Global Systemically Important Banks (G-SIBs): UBS is classified as a G-SIB, meaning its failure could trigger a global financial crisis. Such banks are subject to heightened regulatory scrutiny and more stringent capital requirements.
- The TBTF Report: The "Too Big to Fail" report by the Swiss Federal Council assesses the adequacy of measures in place to prevent large banks from collapsing and to manage their resolution without harming the economy.
- FINMA's Role: Beyond regulation, FINMA conducts annual assessments of banks' resolvability and collaborates with the Financial Stability Board (FSB) to monitor global financial stability risks.