Research - 06.06.2023 - 13:30 

Appraisal published on too-big-to-fail regulation

In March, the State Secretariat for International Finance commissioned Prof. Dr. Manuel Ammann to prepare an appraisal on too-big-to-fail regulation in connection with the takeover of Credit Suisse by UBS. This appraisal was published yesterday.
Gutachten zu Too-Big-to-Fail-Regulierung publiziert

The takeover of Credit Suisse by UBS raises a number of questions, which a Parliamentary Investigation Commission (PUK) is expected to address. Back in March, the Federal Council announced that it would conduct a thorough review of the events and a comprehensive evaluation of the too-big-to-fail framework (TBTF). This was to include external appraisals, hence the State Secretariat for International Finance (SIF) commissioned Prof. Dr. Manuel Ammann of the Swiss Institute of Banking and Finance to provide an assessment. The SIF published the corresponding appraisal yesterday.

More equity, better access to liquidity and possible nationalization

In the appraisal, Manuel Ammann and his co-authors reach the following conclusions: Existing regulation is not sufficient to effectively limit the financial risk posed by TBTF banks to the general public. The resilience of systemically important banks must be strengthened, firstly through greater capital adequacy, and secondly through improved access to National Bank liquidity. Thirdly, workable arrangements must be made for the event that a TBTF bank nevertheless runs into difficulties and a resolution of the bank with bail-in of creditors is to be avoided for economic or political reasons. To this end, the appraisal proposes supplementing the existing set of instruments with the option of temporarily nationalizing a TBTF bank to restore systemic confidence.

The appraisal is available to download here.

Image: Adobe Stock / Michael Derrer Fuchs

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