The Financial Times gives prominent play to a story that I suspect will go largely unnoticed in the US, that of the way that the Switzerland’s bank regulator, the Swiss National Bank, has forced its two biggest banks, UBS and Credit Suisse, to shed risk in a serious way and shrink.
It took a while for the central bank to impose conditions, but the proximate cause was the bailout of UBS during the crisis. As we discussed in ECONNED, UBS went full bore into bonus gaming, not only keeping its own AAA CDO tranches, but also buying them from other banks, then partially hedging them with credit default swaps. That created very large and easy “profits” for the traders. And as we know, that scheme blew up spectacularly.
The Swiss National Bank, unlike any other sugar daddy rescuing reckless banksters, forced UBS to hire independent parties to interview staff and prepare a report explaining in gory detail how the bank blew itself up. Most of this information was made public. Had every other banking regulator followed suit with their wayward charges, it would have provided a vastly better foundation for discussions of regulatory reforms and would have led to much more focused investigations.
The SNB earlier this year had taken the unprecedented step of
imposing a 19% capital requirements, which is in line with the
recommendations of some academics, like Amat
Admati. This was the outline of the plan, per Eurointelligence: