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Swiss Regulator Is Lauded For Handling Financial Crisis

Knud Noelle

13 May 2010

At a time when financial regulators have come under fire for failing to foresee and act quickly on banking problems, the Swiss government says its Financial Market Supervisory Authority, FINMA, had handled the events of the crisis relatively well compared to its peers.

The report represents what the Federal Council called “an in-depth examination” of the decisions and conduct of FINMA and its predecessor, the Swiss Federal Banking Commission (SFBC), during the financial market crisis, which saw the Alpine state having to provide financial aid to its banking heavyweight UBS.

Switzerland had for decades enjoyed a reputation for financial solidity, almost making a virtue out of dullness in the lack of serious banking problems. However, UBS's masssive losses and tax evasion wrangles in the US have affected the image of the country's industry. Since the crisis, the country, like other nations, has looked at ways to overhaul its regulatory system.

The Federal Council believes that the nation’s supervisory authorities handled the crisis well compared to other countries. Nevertheless, the report adds that there were deficiencies within the SFBC’s supervision of the domestic banking giants in the run-up to the crisis.

The report points out in particular that the systematic exchange of information was too infrequent, thus leading to insufficient comparisons of the strategies of UBS and Credit Suisse concerning their involvement in the US mortgage market.

Critically, the report adds that while SFBC did discover some problems at UBS prior to the crisis, these were not followed up with enough vigour. The regulator also relied too much on UBS’s own assessments and statements, being blinded by what they considered to be “model student”, the report says. It also says that the supervision of large banks was understaffed.

However, the report did not find any evidence that UBS exerted undue influence on the SFBC.

The report also points out that there is a larger global problem with poor international financial regulation, particularly in the field of capital and liquidity requirements, remuneration and the so-called "too big to fail"-problem.

The Federal Council does not believe that there must be changes to financial supervision at the level of legislation in Switzerland. It also did not find deficiencies within the management structure of FINMA.

The investigations revealed no dependencies on the part of the SFBC or FINMA on those being supervised.

The Federal Council supports FINMA, which hopes to increase its own supervisory scope. However, it continues to consider comprehensive product supervision as unsuitable.

The report did not deal with the way FINMA dealt with the US investigations concerning UBS’s violations of US tax law provisions. This topic is the subject of an ongoing lawsuit and an investigation by committees in the National Council and the Council of States, the lower and upper house of the Swiss parliament.

In a statement by FINMA, the regulator said that it noticed that the report largely concurs with its own analysis conducted in 2009.

FINMA has drawn its lessons from its own analysis of the crisis and published them in autumn 2009. The supervisor is now in the process of implementing these objectives.