The good news of the weekend is that with a takeover of the struggling major bank Credit Suisse by the larger Swiss competitor UBS, accompanied by generous state aid, the danger of the crisis of American regional banks spreading to Europe seems to have been averted, at least for the time being.
However, the way the Credit Suisse bailout was organized has provoked much criticism inside and outside the Confederation. It is not unjustified. Experience has shown that short-term and therefore initially welcome bank bailouts are often accompanied by very considerable long-term economic and political costs, which sometimes only materialise after many years.
The market in the Confederation had long since become too small for the country's leading houses. Credit Suisse began a powerful expansion into American investment banking about four decades ago. The Schweizerische Bankgesellschaft and the Schweizerische Bankverein, which later merged to form UBS, were no different. The major Swiss banks also pursued global strategies with a focus on North America and Asia in asset management.
International owners
With the globalization of the business, the internationalization of ownership and management followed. The main shareholders of UBS, such as Credit Suisse, are not from the home country of the two banks; there have also been foreigners in the top management of the two houses for many years. In Switzerland, the two major banks were regarded as icons and figureheads of the financial centre. In fact, they have long been global banks based in Switzerland. And in doing so, they became vulnerable to the lure of global banking.
UBS had survived the financial crisis about 15 years ago only with massive help from the state, after it had turned too big wheels in international investment banking and got into some scandals. UBS learned its lessons and largely withdrew from investment banking. Today, it is once again one of the most respected banks, not only in Europe.
Credit Suisse had come through the financial crisis well and felt it didn't have to learn any lessons. The result was a decline over a decade accompanied by strategic deficits, astonishing mistakes in the operating business and a manifestly inadequate management of risks. Credit Suisse's current crisis has a long history.
The criticism of the manner of the rescue is ignited by the idea in Bern and Zurich that Credit Suisse had cast doubt on the reputation of Switzerland and its financial center. This idea was supported by an idea, widespread in parts of the public since the erosion of tax banking secrecy, that foreigners – especially Americans and Europeans – wanted to harm Switzerland. According to this interpretation, Credit Suisse fell after foreign machinations.
According to the textbook, a resolution of the bank based on prepared emergency plans would have been recommended. The best solution from a regulatory point of view was, in the politicians' own words, too risky. But perhaps they also wanted to avoid smashing the former icon for patriotic reasons? The second solution would have been a direct state stabilization of the bank.
In terms of regulatory policy, a (partial) nationalization would be questionable, but Washington had shown in 2008 with the temporary entry into several major banks at least a conceivable way, which one did not want to go in Bern. The Americans had sold their bank holdings at a profit, but if a government bailout went badly, the cost to the taxpayer could not be concealed. Political trouble would be inevitable.
Antitrust law is suspended
Instead, with the plan to drive the tumbling Credit Suisse into the arms of the firmly dormant UBS, the government and the authorities pursued the goal of decorating the financial center with a now huge bank. This integration is likely to occupy UBS for many years. Worse is the loose handling of legal principles. With reference to the emergency situation, the shareholders of the banks are deprived of their right to decide on the merger.
Antitrust law will be suspended so that the two banks can merge their business in Switzerland. Credit Suisse employees receive bonuses despite the debacle. In addition, the state has promised financial aid. "Whatever it takes" – Bern has built a colossus that could become too big for the Confederates if he ever needed help one day.