ZURICH (Reuters) – Swiss Finance Minister Karin Keller-Sutter said on Wednesday that international financial authorities must consider the legal risks surrounding the possible liquidation of global banks.
In an interview with the Frankfurter Allgemeine Zeitung, Keller-Sutter was asked whether the rules governing banks deemed “too big to fail” should be standardised internationally so that they could be liquidated.
Keller-Sutter said she was in contact about the matter with the Financial Stability Board, the body that oversees the global financial system, and other finance ministers, including German Finance Minister Christian Lindner, who she will meet with in Berlin.
“We want to raise awareness that in some cases it may not be possible to liquidate a bank due to international legal risks. That was clearly a risk in the case of Credit Suisse,” he said, referring to the Swiss bank that collapsed last year.
“There are significant doubts about whether a mandatory creditor recapitalization, or so-called ‘bail-in,’ would work,” Keller Sutter said.
“I’m mainly looking at the US. The big banks have a lot of investments in the US. That’s why the US regulators have to agree to the liquidation of the banks.”
To manage this risk, the Swiss government is asking systemically important banks to contribute up to 100% of their shares in their overseas subsidiaries, she said.
“The share pledge of a foreign subsidiary must be large enough that it can be sold or liquidated in the event of a crisis without causing damage to the Swiss parent. That was exactly the problem with Credit Suisse,” she said.
Credit Suisse’s collapse roiled financial markets, led to a takeover by longtime rival UBS and prompted the Swiss government in April to roll out its own measures to tackle large companies that it cannot afford to fail.
UBS formally absorbed Credit Suisse’s parent company last week. Ratings agency S&P on Tuesday raised its outlook for UBS Group AG to stable from negative, citing “mitigated tail risks from the group’s consolidation and restructuring.”
(Reporting by Dave Graham and Mirigankh Daniwala Editing by
