Swiss central bank promises regulation review after collapse of Credit Suisse

Thomas Jordan, President of the Swiss National Bank (SNB), speaks at the bank’s Annual General Meeting in Bern, Switzerland, on Friday, April 28, 2023.

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Following the recent turmoil over Credit Suisse, the Swiss National Bank promised to review banking regulations at its annual general meeting in Bern on Friday.

Against the backdrop of protests against the company’s actions on climate change and its role in emergency sales credit suisse Swiss rival UBSMoreSNB board chairman Thomas Jordan said banking regulation and supervision must be reviewed in light of recent events.

“This requires a detailed analysis… A quick fix must be avoided,” he said, according to a statement.

The central bank was key in brokering a rescue for Credit Suisse on a chaotic weekend in March when deposit outflows and a plummeting stock price nearly brought the 167-year-old company to the brink of collapse. played a role.

The deal has been plagued with controversy and legal issues, particularly over the lack of investor input and the unconventional decision to wipe out the CHF 15 billion ($16.8 billion) Credit Suisse AT1 bond.

The bankruptcy of Switzerland’s second largest bank has fueled widespread dissatisfaction and severely damaged Switzerland’s long-standing reputation for financial stability. There was also a feverish political backdrop, with federal elections scheduled for October.

Jordan said on Friday that future regulation “must compel banks to hold sufficient assets, which can be pledged or transferred at any time without restriction, and thus pledged to existing liquidity facilities as collateral.” He added that this means central banks can provide needed liquidity in times of stress without the need for emergency legislation.

Ahead of the General Assembly of the Swiss National Bank (SNB) in Bern on April 28, 2023, a man holds a placard that reads in German: “Invest in the Earth, not in its destruction.” shareholders are participating in the protest. (Photo by Fabrice COFFRINI/AFP) (Photo by FABRICE COFFRINI/AFP via Getty Images)

Fabrice Coffrini | Photo Afp ​​| Getty Images

The SNB faced questions and complaints from shareholders about the situation at Credit Suisse on Friday, but the country’s network of climate activists hopes to use the central bank’s unwanted spotlight to challenge its investment policies. It was made. According to Reuters, the activist failed to gain support in a vote reprimanding SNB’s investment decision, with only 0.8% of shareholders supporting the move.

Unlike many major central banks, the SNB is a publicly traded company with just over half of its share capital of approximately 25 million Swiss francs ($28.1 million) held by public shareholders, including various Swiss cantons (cantons) and cantonal banks. It is operated. Stocks are held by individual investors.

The SNB Coalition is a pressure group spun out of the Alliance Climatique Suisse, an umbrella organization representing around 140 environmental campaign groups in Switzerland.

About 50 of the activist’s shareholders were in attendance on Friday, and the activist planned to give about a dozen speeches on stage at AGM, climate campaigner Jonas Kampas told CNBC Wednesday. But protests took place, and Reuters reported that the campaign had reached a total of 100 people, leading to tighter security.

The group, pointing to the central bank’s own investment guidelines, calls for the SNB to dispose of its stake in “companies that cause serious environmental damage or violate basic human rights.”

In particular, campaigners highlight holdings of SNB chevron, shell, total energy, exxon mobilRepsol, Enbridge, Duke Energy.

Members of the Ugandan community opposing TotalEnergies’ East Africa crude oil pipeline were also scheduled to attend on Friday, with one of them scheduled to speak directly to the SNB board on stage.

Activists are calling for the SNB to implement a ‘one-to-one rule’, as well as a complete withdrawal from fossil fuel investments. This is a capital requirement designed to prevent banks and insurance companies from profiting from activities that are detrimental to the transition to net zero.

In this context, the SNB must set aside 1 Swiss franc of its own funds to cover the potential loss of each franc allocated to finance new fossil fuel exploration or mining.

Ahead of the AGM, the central bank declined to schedule three motions submitted by activists for legal reasons, and on Wednesday did not comment on the protest plan, instead giving CNBC a formal agenda. said to direct. Still, Kampas suggested that the process of submitting the motion itself helped expand public and political awareness of the issue.

“From all sides there is public and political pressure that the SNB needs to change things. At the moment, the SNB is very far behind in terms of their actions compared to other central banks.” Kampas told CNBC by phone. The SNB has a “very conservative view” of its mandate on price stability and financial stability, adding that it is “very narrow”.

The shareholder cause is also supported by motions in parliament, with the support of parliamentarians from the Greens to the centre. [center-right party]This calls for expanding the powers of the SNB to cover climate and environmental risks.

“Other central banks around the world have gone far beyond the steps taken by the SNB in ​​this regard, but the SNB takes the position that its powers do not allow sufficient leeway to fully consider climate risks in its decisions. and monetary policy measures,” reads a motion submitted on 16 March by Green MP Delphine Klopfenstein-Blogzini.

Chairman of the Swiss National Bank: Maintaining stability is our main goal

“The current parliamentary initiative aims to ensure this leeway and make it clear that the SNB must take climate risks into account when implementing monetary policy.”

The motion argued that climate risk is “globally classified as a material financial risk that could endanger financial and price stability” and, as other central banks are trying to do, the “SNB It would be in the interest of Switzerland as a whole to address these issues proactively.”

Campas and his fellow activists hope that the state’s focus on SNB after the Credit Suisse crisis will provide a fertile ground for furthering concerns about climate risks. Climate risks pose a risk to the financial system that is “several times greater” than the potential impact from credit, he said. Switzerland collapsed.

“I feel like there’s an opportunity on the SNB side, too,” Kampas said.

He said the central bank has always insisted that climate risks are built into its model and that “there is no more need to trade with the public for more transparency.”

Investors who predicted Credit Suisse's decline say Swiss banking model is 'damaged'

“At the heart of the SNB’s work is that the public just needs to trust. Demanding trust without offering any further proof that they can, especially if you don’t know what their climate model is, is very scary to trust them long term.

The SNB has argued that its passive investment strategy of investing in global indices is part of its mandate to remain market neutral and keep central banks out of climate policy. Activists hope that mounting political pressure will eventually force changes in the law, expanding his SNB’s mandate to address climate and human rights as risks to financial and price stability.

UBS and Credit Suisse also faced protests from climate change activists at their respective AGMs earlier this month over their investments in fossil fuel companies.

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