OECD Says UBS’s Rescue Of Credit Suisse Is A Risk For Switzerland

(CTN News) – A year ago, UBS acquired Credit Suisse in a rescue deal that created “new risks and challenges” for the Swiss economy, according to the Organization for Economic Cooperation and Development.

It may be true that the acquisition has contributed to financial stability, but it also raises questions about UBS’ dominance in the market and the need for stronger financial regulation in the future, according to the OECD’s economic review of Switzerland.

A merger between Credit Suisse and UBS, orchestrated by the Swiss state in order to avert Credit Suisse’s collapse, has created the world’s biggest bank group, whose assets dwarf that of the Swiss economy as a whole.

This state-facilitated acquisition of Credit Suisse by UBS has effectively stabilized the spiraling crisis within the bank and tamed spill-over risks, thus safeguarding the stability of the financial system, but it has also raised new risks and challenges,” the OECD said.

According to the ‘too big to fail’ regulations, UBS – already a global systemically important bank before the merger- has become even larger, and in order to meet the increased regulatory requirements, it must adhere to even stricter regulations under the TBTF regulations.

Last month, the Financial Stability Board (FSB), an organization composed of central bankers, treasury officials, and regulators from the top 20 economies around the world, warned that a failure of UBS would pose a risk to Switzerland and urged Bern to strengthen the bank’s control over its operations.

Towards the end of the year, FINMA, the Swiss government’s primary supervisor, is due to provide an update on how it plans to toughen up regulations covering large banks, perhaps including new tools for FINMA to use, as the agency has asked for better tools.

It is noted that the OECD has raised questions regarding competition, since according to the Swiss National Bank’s data, the newly combined bank has a roughly 25% share of domestic deposits and loans.

Last month, Reuters reported that Switzerland’s competition commission was in favor of a deeper investigation of UBS’ dominance over certain parts of the financial markets in the nation.

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