The G20 Financial Stability Council praised Swiss authorities’ handling of the financial crisis caused by Credit Suisse at home, while at the same time criticizing watered-down or not implemented standards.
Regulators’ willingness to apply the rules for the resolution of systemically important banks has recently been put to the test.
Criticism was initially leveled at the US authorities, as they wound up the collapse of Silicon Valley Bank (SVB), which was less well regulated than the big Wall Street banks.
No Dilution of Standards
The Basel Committee on Banking Supervision always acknowledged there can be some leniency for not internationally active banks such as SVB. The simplification of rules, however, should not be allowed to dilute standards, but should be based on the risk profile of the bank and its systemic importance, the authority has warned on several occasions in the past.
To many in Switzerland, it was incomprehensible that authorities orchestrated and forced the takeover of Credit Suisse by UBS.
Fast and Effective
The view from outside of Switzerland is somewhat different. The G20 Financial Supervisory Authority, an international body with representatives from central banks, regulators, and finance ministries, gives the actions taken by the Swiss good marks, according to a «Reuters» report Thursday.
Authorities in Switzerland, the United States, and other countries acted quickly and effectively to preserve global financial stability and were praised by Klaas Knot, who heads the Financial Stability Board (FSB), in a letter to finance ministers and central bank governors of G20 countries.
Unlike other market shocks, the recent episode originated in the financial sector, Knot said. Here the FSB’s set of rules for better capitalization of banks and their rapid resolution in the event of a crisis would have worked well without public assistance.
The FSB drafted the too-big-to-fail rules for banks after taxpayers bailed out various credit institutions during the financial crisis of 2007 to 2009. Without those reforms, the stress faced by individual banks could have led to broader contagion within the financial system, Knot said.
But financial stability remains under threat because of rising interest rates and a weakening economy. Given that, the FSB singled out overall high debt levels and the overvaluation of leveraged assets as vulnerabilities, as well as business models that only work when interest rates are low.
Handing in Homework Late
For Knot, therefore, the rapid and full implementation of international financial standards remains crucial.
The EU might feel it is being singled out for handing in its homework assignment late. The bloc has yet to fully implement or modify Basel III and Basel IV banking reforms adopted in 2017. Final discussions are currently underway between the EU Commission, the EU Council, and the EU Parliament.
In Switzerland, the transposition of the Basel III standards into Swiss law is scheduled to be completed in July 2024, after the consultation process, completed last October, led to some discord among banking and political circles.