Credit Suisse hemorrhaged funds during March turmoilAs the Swiss parliament braces itself to launch an unprecedented investigation into the collapse of Credit Suisse, once the country’s second-largest banking institution, the financial world is on tenterhooks.
The findings of this investigation could potentially have far-reaching implications for the Swiss banking sector and beyond.
The anatomy of the investigation
A dedicated commission, comprising 14 members, is poised to delve into the government’s actions preceding and during the catastrophic downfall of Credit Suisse.
The team will focus less on the role of the bank’s management and more on the conduct of state entities like the Swiss cabinet, the finance ministry, the Swiss National Bank, and the financial market regulator FINMA.
The investigation’s remit isn’t a legal proceeding, but its findings could inform lawsuits in the wake of Credit Suisse’s downfall, particularly if fresh information or discrepancies are unearthed.
Of paramount importance is the question of whether FINMA, the finance ministry, and the central bank should have intervened sooner.
Notably, Credit Suisse had been visibly struggling for two years, besieged by scandals and massive customer withdrawals towards the end of 2022. What information did the authorities have access to?
How forthcoming was the bank with the regulator, and what level of information was it sharing with the government? Could the central bank have offered more support, perhaps by promising unlimited liquidity to Credit Suisse to assuage customer concerns and stem the funds’ exodus?
Projected outcomes and powers of the commission
The investigation, anticipated to last between 12 to 18 months, will culminate in a detailed report summarizing its findings and providing recommendations to the government and parliament.
Rather than touching upon technical aspects like capital ratios, the report will likely focus on enhancing FINMA’s effectiveness, potentially by amplifying its powers.
The commission may also contemplate bolstering the central bank’s supervisory powers over large banks, especially in light of UBS’s newly acquired stature – its balance sheet now doubles the size of the Swiss economy.
However, as the commission cannot legislate, any proposed changes will require parliamentary approval.
Armed with the authority to access government meetings’ minutes and other confidential documents, the commission forms parliament’s most powerful investigative tool. All individuals employed by the government, the federal administration, the regulator, or the central bank are required to participate in its hearings.
It remains to be seen whether Credit Suisse and UBS executives will be mandated to testify, but due to the mounting political and public pressure, their presence is widely expected.
Logistics of the investigation
With a budget of 5 million francs, the commission will establish its office, remunerate its members, and engage external experts and consultants. The commission’s meetings will be held in private, with no public or broadcast access.
Any individual recommendations and the overall report will be decided by a majority vote and subsequently presented to both houses of parliament and then the government.
Leading the investigation will be Isabelle Chassot of the centrist Mitte party, with Franziska Ryser, a Green party lawmaker, as her deputy.
The investigation’s potential to provide Swiss authorities with an opportunity to redeem themselves is not lost on observers, though some caution against it becoming mere political theatre.
Regardless of the outcome, the Credit Suisse investigation promises to serve as a stark reminder of the perils of financial mismanagement.
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