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Switzerland’s financial regulator is shining a spotlight on the litany of failures that led to the collapse of Credit Suisse this spring.
Finma’s report on the Credit Suisse crisis, published this morning, shows that the bank failed due to shortcomings in its strategy and management, leading to its rescue by UBS.
The definition, implementation and monitoring of the strategy are the responsibility of the bank’s Board of Directors. The Board made numerous strategic changes with the aim of downsizing the investment bank, reducing the volatility of its earnings, and focusing the business model more on asset management. These strategic changes were not implemented consistently. Earnings remained volatile both in the investment bank and in asset management.
Recurrent scandals undermined the bank’s reputation, weighed on its results and resulted in clients, investors and the market losing faith in it.
Credit Suisse’s problems manifested themselves in a range of business areas and due to various risk types. In almost all of these problems, serious deficiencies in risk management played a role. FINMA’s measures targeted these deficiencies and tightened up checks and controls. FINMA also repeatedly criticised the bank’s risk culture and went to the limits of its legal powers with its measures. Despite the – sometimes extensive – adjustments, over the years the bank’s governing bodies were unable to find long-term overall solutions to the shortcomings in the bank’s organisation identified by FINMA.
Even in years where the bank reported large losses, the variable remuneration remained high. Credit Suisse’s main shareholders made little use of the possibilities available to them to influence remuneration.
Reorganisations, high costs, fines and losses also eroded its capital base. As a result, Credit Suisse was repeatedly forced to raise capital on the market.
Credit Suisse satisfied the regulatory capital requirements. However, these were not enough to prevent the huge crisis of confidence. The parent company, CS AG, had the weakest capital adequacy within the Group, which made it the weakest link in the chain.
Credit Suisse also complied with the regulatory requirements for liquidity, and held comfortable liquidity buffers in summer 2022. However, the loss of confidence in the bank led to rapid, extensive liquidity outflows that were further exacerbated by the digital communication channels (digital bank run) and ultimately brought the bank to the brink of insolvency.
