The Federal Council welcomes the planned takeover of Credit Suisse by UBS. To strengthen financial market stability until the takeover is complete, the federal government is providing a guarantee for additional liquidity assistance from the Swiss National Bank (SNB) to Credit Suisse. This support is intended to secure the liquidity of Credit Suisse and thus also ensure the successful implementation of the takeover. The Federal Council is taking this measure in order to protect financial stability and the Swiss economy.
The private takeover of Credit Suisse by UBS, supported by a public liquidity backstop, will strengthen confidence in the financial system and create stability for the international financial system, thereby averting serious consequences for the Swiss economy, while at the same time keeping the cost for the state and taxpayers as low as possible. All of the foreign supervisory authorities involved view the Swiss authorities' action as appropriate. It will also provide reassurance to international financial markets.
Bankruptcy of a systemically important bank like Credit Suisse would have had drastic consequences for Switzerland. Banks in general, but systemically important banks in particular, are key for a national economy to function, as businesses and households depend on them for their economic operations. The failure of a systemically important bank would have ramifications that go beyond the loss of tax contributions or jobs at the bank in question. First, the bank's failure would mean that hundreds of thousands of clients throughout Switzerland – including many SMEs – would lose access to a substantial portion of their bank balances and would quickly find themselves unable to meet their payment obligations. As a result, SMEs and households throughout Switzerland would find it almost impossible to function economically. The Swiss economy would thus run the risk of grinding to a halt.
In the case of globally active systemically important banks, there is also a high risk of contagion. The discovery that clients of a globally active systemically important bank are no longer able to access their assets would trigger a loss of confidence both in Switzerland and globally. Other, fundamentally "healthy" banks in Switzerland would be affected. The uncontrolled failure of a globally active systemically important bank could then trigger a global financial crisis.
Yes. Credit Suisse has to pay a commitment premium for the CHF 100 billion federal default guarantee for additional liquidity assistance loans from the SNB to Credit Suisse. This amounts to 0.25% per year on the amount of the CHF 100 billion default guarantee. In addition, there is a risk premium of 1.5% on the funds actually drawn down.
The commitment premium is due even if Credit Suisse has not yet drawn any money from these SNB liquidity assistance loans. It is payable from 20 March 2023.
However, the commitment premium will not be paid out until the credit agreement with the SNB is terminated. The rate of 0.25% on CHF 100 billion corresponds to annual receipts of CHF 250 million. If the term of the credit agreement is shorter than one year, only the corresponding share will be due.
This decision has no impact on the takeover of Credit Suisse decided on 19 March. Due to the urgency of the matter, the Finance Delegation already gave its binding approval for these guarantee credits on 19 March 2023 on behalf of Parliament.
The funds are already fully committed, as the federal default guarantee provided to the SNB and the federal guarantee for UBS are part of the agreement on the takeover of Credit Suisse by UBS. The contract between the Confederation and the SNB on the default guarantee has already been concluded. The guarantee for UBS is still being negotiated, but it is part of the overall solution.
Although the decision has no impact on the guarantees, the FDF nonetheless takes such political signals seriously. During the negotiations with UBS, the federal government will take this political signal into account, while simultaneously taking care not to jeopardise the takeover by UBS.
However, the Federal Council will also take account of this signal as regards the work still to be done. At the same time as it approved the dispatch, the Federal Council decided on a thorough review of the events that led to UBS taking over Credit Suisse, and an in-depth evaluation of the too-big-to-fail regulations. This evaluation will involve external experts and will, as far as possible, address the questions submitted as postulates to the Federal Council. The results are expected to be submitted to Parliament within 12 months as part of the Federal Council's next report on systemically important banks pursuant to Article 52 of the Banking Act.
The conclusion that parliamentary approval is absolutely necessary because the credits must be submitted to Parliament for retroactive approval is false. The Federal Act of 17 December 2010 on Safeguarding Democracy, the Rule of Law and the Capacity to Act in Extraordinary Situations has no independent significance. The Act was mainly used to amend the Financial Budget Act. Of course, the FDF and the Federal Council take the legislation in force as a basis, including the amendments in Article 34 of the Financial Budget Act. A distinction needs to be made between the formal act of submitting a credit to Parliament for retroactive approval – which is a requirement – and the effects of a retroactive non-approval. Non-approval has no legal effect. An assessment by the Secretariat of the Finance Committees came to the same conclusion. Due to the urgency of the matter, the Finance Delegation already gave its binding approval for these guarantee credits on 19 March 2023 on behalf of Parliament. The funds are already fully committed, as the federal default guarantee provided to the SNB and the federal guarantee for UBS are part of the agreement on the takeover of Credit Suisse by UBS. The contract between the Confederation and the SNB on the default guarantee has already been concluded. The guarantee for UBS is still being negotiated, but it is part of the overall solution. Although Parliament's decision has no impact on the guarantees, the FDF nonetheless takes such political signals seriously. During the negotiations with UBS, the federal government will take this political signal into account, while simultaneously taking care not to jeopardise the takeover by UBS.
Credit Suisse's positive quarterly results are a direct consequence of the measures adopted by the authorities on 19 March 2023 to ensure the stability of the financial system. The complete writedown of additional Tier 1 (AT1) capital ordered by the Swiss Financial Market Supervisory Authority FINMA reduced Credit Suisse's debt burden by a large amount in the billions, which is reflected in accounting terms as extraordinary income in the first-quarter statement of operations. This measure was necessary in order to enable the takeover by UBS and thus create stability and prevent a bankruptcy with unforeseeable consequences.
Excluding the one-off special factor in the first quarter of 2023, Credit Suisse still reported a loss from current operations.
The positive effects for the public sector are twofold:
Taxes: the reduction in the losses recognised means that a smaller amount of losses from previous business years can be offset against the merged bank's net profits in future years. This may lead to higher tax receipts for the public sector in the future.
Default guarantee: lower losses mean that it is less likely that the state guarantees provided to the SNB will have to be utilised. This is in taxpayers' interest.
CHF 100 billion in additional liquidity assistance loans from the SNB to Credit Suisse and UBS, secured by preferential rights in bankruptcy proceedings for the SNB, but without a state guarantee from the Confederation (= additional emergency liquidity assistance, or ELA+).
CHF 100 billion in secured liquidity assistance from the SNB, secured by preferential rights in bankruptcy proceedings for the SNB, coupled with strict conditions, and by a state guarantee from the Confederation (= public liquidity backstop). The preferential rights in bankruptcy proceedings and the strict conditions significantly reduce the risk for the Confederation.
A state guarantee of a maximum of CHF 9 billion for UBS to cover any losses on the sale of difficult-to-assess Credit Suisse assets. The first CHF 5 billion of any losses on these positions will be borne by UBS in any case.
Not part of the package of 19 March 2023:
CHF 50 billion in emergency liquidity assistance from the SNB. This is an existing SNB monetary policy instrument. Banks can access SNB liquidity against collateral (= emergency liquidity assistance, or ELA). According to its own press release of 16 March 2023, Credit Suisse accessed up to CHF 50 billion under this arrangement.
Despite the bank's own liquidity supply and the SNB's extraordinary liquidity assistance, incidents may occur that can lead to an abrupt loss of confidence in the bank by market participants and thus to liquidity problems. This can be the case even if the bank meets the regulatory capital requirements. The liquidity assistance would also have been necessary under alternative scenarios such as temporary public ownership.
In the event of bankruptcy, outstanding loans from the SNB are assigned to the second bankruptcy class and are thus repaid from the bankruptcy estate immediately after the first class (including employee wages, social security contributions). Within the second bankruptcy class, these claims are ranked after privileged liabilities (e.g. social security contributions, privileged deposits), but ahead of the remaining claims in the third bankruptcy class. In addition, the borrower is required to pay a commitment premium and a risk premium.
The Federal Council has taken precautions to minimise the risk for the Confederation. The SNB has been granted preferential rights in bankruptcy proceedings for the liquidity assistance loans secured by the federal government. Furthermore, any remaining risks are to be offset. Credit Suisse is thus required to pay a risk premium to both the federal government and the SNB, a commitment premium to the federal government for providing the default guarantee, and interest to the SNB. Together with the preferential rights in bankruptcy proceedings, this means that the Confederation's default risk exposure is significantly reduced.
Internationally, a public liquidity backstop is part of the standard crisis toolkit. It can be a critical prerequisite for a systemically important bank's business continuity. Public liquidity backstops (PLBs) are based on recommendations of the Financial Stability Board (FSB), and have been introduced in different forms in various jurisdictions (e.g. United States, United Kingdom, European Union). The Federal Council had to use an emergency ordinance because Switzerland does not have a PLB anchored in law. According to the instructions issued by the Federal Council to the Federal Department of Finance (FDF) on 11 March 2022, a consultation draft for the introduction of a PLB to strengthen financial sector stability is to be prepared by mid-2023.
The two guarantee credits do not immediately result in any financial burden. The federal budget will be impacted only if a loss becomes foreseeable. The Confederation will have to set aside a provision if the probability of a loss is high enough and the loss can be estimated.
With the merger, UBS is taking over from Credit Suisse not only valuable assets, but also a portfolio of assets that were difficult to assess (in the few days available) and that do not correspond to the future core business of UBS. In order to prevent this portfolio from complicating the takeover of Credit Suisse by UBS, the burden of loss on the sale of this portfolio will be shared by UBS and the federal government. The first CHF 5 billion of any losses on this portfolio will be borne by UBS in any case. The federal government will then bear any further losses, up to a maximum of CHF 9 billion. This point is regulated in Article 14a of the emergency ordinance. With regard to any losses in excess of CHF 14 billion, the only thing agreed between the parties to date is that this matter is to be further investigated and clarified. The issue in these negotiations is not only possible losses, but also potential profits on the positions that are to be contractually defined. The Confederation should not only bear risks, but also avail itself of any benefits. In any case, the Confederation has committed solely to a guarantee of CHF 9 billion so far. Any additional guarantees would require Parliament's approval.
Although the existing regulations strengthened the capital base and liquidity of systemically important banks, the Federal Council had only sketched out the parameters for a potential state guarantee for liquidity assistance (public liquidity backstop), an instrument that has been tried and tested internationally, and the corresponding legislative project is still in the pipeline. In view of the severe market turmoil Credit Suisse was facing, the Federal Council has now introduced this instrument based on emergency law under Articles 184 and 185 of the Federal Constitution in order to safeguard the stability of the Swiss economy and the global financial system.
Legislation issued by the Federal Council on the basis of Article 184 paragraph 3 and Article 185 paragraph 3 of the Federal Constitution must always apply for only a limited period. Any emergency ordinance would expire after 6 months if no dispatch had been submitted to Parliament in the meantime (Art. 7 of the GAOA). For reasons of legal certainty, specific measures that are taken on the basis of the emergency ordinance will of course continue to apply.
In the case at hand, there are exceptional secrecy considerations, in particular because of the trade secrets and ongoing negotiations. It is important that the authorities receive all relevant information from the systemically important banks. The FoIA would hamper this process, as the affected institutions might be concerned that the authorities would have to grant access to the information and documentation provided. This could result in the institutions providing the relevant information in incomplete form or after a long delay, or not providing it at all.
However, the authorities do inform the public about important findings, parameters and framework conditions. Please refer to, among other things, the Federal Council press conference of 19 March 2023, the explanatory report on the emergency ordinance and the information on the FDF website, which is updated on an ongoing basis.
On 19 March 2023, there were several options available to solve the acute problems of Credit Suisse, including a takeover by another bank, nationalisation and restructuring in accordance with the TBTF regulations. After careful consideration, however, the Federal Council found the takeover of Credit Suisse by UBS to be the best overall solution for financial stability and the Swiss economy.
The alternatives to a takeover by UBS were:
Temporary public ownership: temporary public ownership (TPO) of the entire Credit Suisse Group was not at the forefront during the preparatory work for regulatory and legal reasons, as well as due to risk considerations, and it was not pursued as a priority in view of the real possibility of a private takeover. Had the federal government taken over Credit Suisse, it would have had to assume all of the bank's risks and its management.
Restructuring of the bank as provided for in the TBTF regime, including bail-in to absorb the necessary losses from the subsequent restructuring work: the massive loss of confidence in Credit Suisse was so severe before the weekend of 18 and 19 March that it was highly debatable whether another capital increase and restructuring could have restored the necessary confidence.
Bankruptcy and triggering of the emergency plan: the bankruptcy of the financial group and the activation of the Swiss emergency plan to ensure the continuity of systemically important functions in Switzerland in particular would have been hugely destabilising for the markets in the prevailing circumstances. Moreover, it would have been extremely unclear whether the separated, surviving Swiss bank would have been able to regain market confidence in the long term in this situation.
A spin-off of the Swiss business arm would entail allowing the entire bank to fail and retaining only those bank functions which are systemically important for Switzerland.
This scenario was deemed far too risky by the Federal Council and the supervisory authorities in the current situation where global financial markets are in turmoil.
There are two reasons for this:
First, in the current, extremely fragile environment, it could have triggered an international financial crisis. This would have had massive repercussions for Switzerland as a business location and financial centre.
Second, client confidence in Credit Suisse had unfortunately been eroded to such an extent that implementing the emergency plan would have carried considerable risks for the Swiss business arm as well.
However, important parts of the TBTF regime have also proved to be very effective. It is only because of the stricter capital and liquidity requirements that Credit Suisse was able to survive some of the turbulence at all. But in this case, we reached a point where the loss of confidence could no longer be stopped.
The too-big-to-fail measures (increased capital and liquidity requirements, and improved resolvability) are suitable for lowering the likelihood of state intervention. The stability of the Swiss financial sector as a whole is also attributable to these measures. However, following massive and rapid outflows of funds, confidence in Credit Suisse has been eroded very quickly, despite it having sufficient capital and high liquidity for a prolonged period, and the bank is at risk of bankruptcy. While the possibility of a public liquidity backstop is in the pipeline in Swiss legislation, it is not yet in force. Therefore, it had to be enacted under emergency law in order to safeguard the stability of the Swiss economy and the financial system.
The existing regulations will be continually reviewed and, if necessary, adapted to new developments. Specifically, the introduction of a public liquidity backstop is being prepared. Moreover, even higher liquidity requirements had already been decided for systemically important banks. These came into force on 1 July 2022 and must be met by the end of 2023.
At the end of March 2023, the Federal Council decided to review the takeover of Credit Suisse by UBS and to evaluate the too-big-to-fail framework. In doing so, the Federal Council relies on Article 52 of the Banking Act, which obliges it to report regularly on systemically important banks. The next corresponding report should be available by the beginning of April 2024. In connection with the preparation of the report, the Federal Department of Finance has set up a working group under the leadership of Jean Studer, former Chairman of the Bank Council of the Swiss National Bank. See:
Credit Suisse dividend payments are not allowed for the duration of the state support. The Federal Council has also imposed restrictions with regard to remuneration packages, pursuant to Article 10a of the Banking Act, whereby the payment of variable remuneration may be wholly or partially prohibited.
Yes. FINMA has been provided with a clearer legal basis so that part of Credit Suisse's regulatory capital can be written off (private creditors are to share in the exposures to the tune of CHF 16 bn2). This ensures that private measures are taken in addition to state measures.
2 Correction of 20.03.2023: changed from "around CHF 17 bn" to "CHF 16 bn"
Yes, deposits of up to CHF 100,000 are safe, even if the bank were to go bankrupt. The takeover of Credit Suisse by UBS and the public liquidity backstop will boost confidence in the bank's stability.
The currently outstanding variable remuneration of the top three levels of management at Credit Suisse will either be cancelled (Executive Board), or reduced by 50% (members of management one level below the Executive Board) or by 25% (members of management two levels below the Executive Board). This differentiated approach takes account of the most senior managers' responsibility for the situation at Credit Suisse. Credit Suisse is also obliged to examine the possibility of recovering variable remuneration already paid out and to report to FINMA on the matter. In addition, the variable remuneration due in 2023 will be cancelled or reduced on a pro rata basis until the takeover is completed. The measures affect around 1,000 employees and concern CHF 50-60 million in variable remuneration.
UBS is required to include non-utilisation of the federal guarantee as a criterion in its remuneration system for those responsible for the realisation of the Credit Suisse assets covered by the state loss guarantee. This is intended to provide an incentive to achieve the most profitable realisation possible of those assets.
The federal guarantee was not required because UBS got into difficulty; instead, it was provided proactively to enable a solution to be found for Credit Suisse. If UBS can no longer offer a competitive remuneration system, there is a danger of this resulting in a considerable risk for operational stability and ultimately for the bank's entire business, which is something to be avoided.
Federal receipts and risk exposure with regard to liquidity loans
Status as of 31 May 2023 (updated monthly)
Commitment premium of 0.25% p.a. for CHF 100 billion public liquidity backstop (PLB):
Accrued premium (cumulative since 20 March 2023):
CHF 50 million
(transfer not until the end of the loan agreement)
Risk premium of 1.5% p.a. for effectively utilised public liquidity backstop (PLB):
Amount utilised (on reference date):
CHF 0 billion
Premium payments to date (cumulative since 20 March 2023):
CHF 60,6 million
PLB: In addition to the commitment and risk premiums payable to the Confederation, Credit Suisse has to pay the SNB interest and a risk premium.
The other liquidity assistance provided by the SNB (without a state guarantee) is not mentioned here.
