Swiss finmin flags legal risks to winding up global banks

(Reuters)-05/06/2024

International financial authorities must give consideration to legal risks surrounding the potential winding up of global banks, Swiss Finance Minister Karin Keller-Sutter was quoted as saying on Wednesday.

In an interview with the Frankfurter Allgemeine Zeitung newspaper, Keller-Sutter was asked whether rules to deal with banks deemed “too big to fail” need to be standardised internationally so that such lenders can be wound up.

Keller-Sutter said she was in contact about that with the Financial Stability Board, a body that monitors the global financial system, and other finance ministers, including Germany’s Christian Lindner, who she is meeting in Berlin.

“I’d like to raise awareness that winding up (a bank) may sometimes not be possible due to international legal risks. In the case of Credit Suisse, that was clearly a risk,” she said, referring to the Swiss bank that collapsed last year.

“There are considerable doubts that recapitalisation via compulsory participation of creditors, that is, a “bail-in”, would work,” Keller-Sutter said.

“I’m looking primarily at the United States. The big banks are heavily invested there. That’s why American supervisory authorities would have to agree to a winding up.”

Managing this risk is why the Swiss government wanted systemically relevant banks to back their foreign subsidiaries with up to 100% equity, she said.

“The equity backing of the foreign subsidiary must be so large that it can be sold or liquidated in a crisis without damaging the Swiss parent company. That was exactly the problem with Credit Suisse,” she said.

The demise of Credit Suisse roiled financial markets and led to its takeover by long-term rival UBS, prompting the Swiss government to set out its own measures for too big to fail entities in April.

UBS formally absorbed the parent company of Credit Suisse last week. Ratings agency S&P on Tuesday revised up UBS Group AG’s outlook to stable from negative, saying that “tail risks from the group’s integration and restructuring have eased”.