The government’s handling of the Credit Suisse meltdown was rejected by a frosty parliament this week during an extraordinary session on the historic UBS takeover. But the vote against the rescue plan has no legal consequences and has been all but ignored by financial markets and international media.
Emergency bailout
In March 2021, the Swiss government approved a CHF 109 billion ($122 billion) emergency bailout to support the acquisition of struggling bank Credit Suisse by UBS. The move was made under emergency powers and bypassed parliamentary approval.
Symbolic rejection
The House of Representatives has now rejected the state guarantees proposed by the government in a symbolic move. Although the move has no legal impact, it does send a clear message to the government that it lacks legislative backing.
Arguments rejected
Finance Minister Karin Keller-Sutter and Swiss President Alain Berset tried to convince lawmakers that the government acted in the country's best interest and that Credit Suisse's collapse would have serious consequences. However, these arguments were not convincing enough for lawmakers, who rejected the proposal.
Senate compromise
The Senate, on the other hand, backed the government's plan but made several conditions, including reforming banking laws, analyzing the possibility of raising minimum equity requirements, and cracking down on bonuses. However, the House of Representatives rejected the Senate's compromise proposal, which had the support of left-wing Social Democrats, Greens, and right-wing Swiss People's Party members.
Little international impact
The decision of the House of Representatives has had little impact outside of Switzerland, with international media barely covering the story. The financial markets also remained unaffected by the decision.
Irrelevant abroad
Economist Stéphane Garelli believes that the decision is merely domestic Swiss politics and irrelevant to the rest of the world. He believes that the bigger issue globally is whether the 29 other "too big to fail" banks are facing similar problems and if new rules should be put in place to regulate these institutions.
No major reforms
While several reports are being drafted on possible bonus caps and raising equity requirements, there is skepticism that any significant reforms will be implemented. Garelli believes that politicians have limited power, and the financial sector is evolving too quickly for regulations to keep up. He believes that banking directors' ethical responsibility and management board oversight are the best ways to manage risk.
The rejection of state guarantees by the House of Representatives is unlikely to have a significant impact on the Swiss economy in the short term. The state financial guarantees remain in place anyway, and there is no sign of instability or market volatility. However, the rejection does highlight the political challenges of dealing with "too big to fail" banks and the need for regulatory reforms to minimize the risks related to big banks. The rejection also sends a signal to the banking sector that political support for bailouts may not always be guaranteed, which could potentially affect investor confidence in the banking sector in the long term. Nevertheless, Switzerland's reputation as a stable and reliable financial center is not likely to be significantly affected by this domestic political decision.
