Swiss Inquiry Exposes Oversight Failures in Credit Suisse Collapse but Blames Bank Leadership

Swiss lawmakers have released a scathing report detailing the collapse of Credit Suisse in March 2023, highlighting systemic failures in the oversight of the financial sector while laying the primary blame on the bank’s mismanagement. The 569-page document, published after months of investigation, criticized Swiss regulatory authorities for lacking transparency and acting inconsistently during the crisis, though it acknowledged their role in averting a global financial meltdown.

Credit Suisse, a 167-year-old institution and Switzerland’s second-largest bank, was rescued by arch-rival UBS in a government-brokered deal for a fraction of its value. The collapse left Switzerland with only one major international bank, UBS, whose balance sheet now exceeds the size of the country’s entire economy.

A parliamentary committee, known as PUK, was formed in June 2023 to examine the government’s response to the crisis. While the inquiry determined that “years of mismanagement” by Credit Suisse leadership caused the crisis, it found no direct misconduct by Swiss authorities. However, it sharply criticized their lack of record-keeping during crucial crisis meetings involving the finance ministry, the central bank, and the financial regulator FINMA.

Key Findings and Recommendations

The report chronicled the bank’s chaotic final days, revealing that discussions about Credit Suisse’s potential demise had been ongoing for months. However, these discussions were often informal, unstructured, and poorly documented. Former Finance Minister Ueli Maurer and ex-Swiss National Bank Chairman Thomas Jordan were singled out for initiating “non-meetings,” which bypassed established crisis-management protocols and created a “parallel format” to avoid leaks.

The committee recommended reforms closely aligned with the government’s initial “too-big-to-fail” proposals from April 2023. These include:

• Strengthening FINMA: Bolstering the financial regulator’s oversight powers and limiting its ability to grant concessions on capital requirements for banks.
• Reevaluating Capital Buffers: Ensuring that systemically important banks like UBS hold sufficient capital to weather future crises.
• Incentive Realignment: Addressing excessive bonuses in the financial sector, noting that Credit Suisse management had received bonuses exceeding 34 billion Swiss francs ($37.9 billion) between 2010 and 2022, despite the bank incurring equivalent losses during that period.
• Improving Governance: Mandating better communication and handover protocols within government departments, especially during periods of financial instability.

The report criticized the transition between former Finance Minister Maurer and his successor Karin Keller-Sutter. Maurer downplayed Credit Suisse’s vulnerabilities, assuring Keller-Sutter that the bank was stable just months before its collapse. The committee concluded that the handover of information was insufficient and contributed to delays in addressing the crisis.

Keller-Sutter, who took office in January 2023, was credited with injecting urgency into the government’s response. However, the report found that she failed to keep the Swiss cabinet adequately informed about the evolving situation, leaving many members unaware of the bank’s dire state until its final days in March 2023.

Broader Implications for Switzerland’s Financial Sector

The inquiry highlighted how Credit Suisse’s collapse has left Switzerland grappling with the risks posed by “too-big-to-fail” institutions. UBS, now the country’s sole global bank, has argued against further capital requirements, warning that excessive regulation could harm its competitiveness and deter investment in Switzerland.

Nevertheless, the PUK report underscores the need for stricter oversight and systemic reforms. It urged the government to prioritize transparency, accountability, and proactive risk management to prevent a repeat of such a crisis.

As Switzerland’s financial sector faces calls for reform, the report serves as a reminder of the delicate balance between fostering market confidence and ensuring robust regulatory safeguards.