Swiss authorities reportedly mull new rules to prevent bank runs

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Swiss authorities and lenders, including UBS, are discussing new measures to prevent bank runs after Credit Suisse’s last-ditch rescue earlier this year, four sources familiar with the matter told Reuters.

This content was published on November 3, 2023 – 08:57

November 3, 2023 – 08:57

Reuters

The talks, which have not been previously reported and are part of a broader review of the country’s banking rules, are intended for the top Swiss banks and could target mainly their wealth clients, two of the sources said.

Among measures being discussed is the option to stagger a greater portion of withdrawals over longer periods of time, one of the sources said. Imposing fees on exits is also an alternative being discussed, two of the sources said.

Rewarding clients who tie up their savings for longer with higher interest rates is being debated, one of the sources said.

Discussions are in the early stages, according to two sources. The Swiss National Bank (SNB) and the Swiss finance ministry are part of the conversations with lenders, one source said.

+ Read more: UBS completes mega-merger with Credit Suisse

A representative for the finance ministry said that the issue of bank runs is part of an overall evaluation of the too-big-to-fail regulatory framework in Switzerland. The Swiss government is due to publish a report in spring next year, he added.

The SNB said the review of too-big-to-fail rules, which focuses on so-called systemically important banks, is ongoing. The central bank declined to comment on ongoing work.

UBS declined to comment.

Reuters could not determine which other banks were involved in the conversations with Swiss authorities.

In Switzerland, UBS, Raiffeisen Group, the Zurich Cantonal Bank and PostFinance are deemed systemically important lenders as their failure could cause serious damage to the country’s economy and financial system.

A spokesperson for PostFinance said it is not involved in the discussions while a spokesperson for ZKB declined to comment. A representative for Raiffeisen did not have an immediate comment.

Deposit runs

Earlier this year, some regional US banks and Credit Suisse suffered massive deposit runs, causing some to fail and regulators to intervene to prevent a broader financial crisis.

Regulators worldwide have since been grappling with the risk of bank runs, which in the era of digital banking have accelerated in speed.

+ Did the government do enough to save Credit Suisse?

In the case of Credit Suisse, the Swiss lender suffered unprecedented outflows and came close to a disorderly wind-down in March. Wealth managers tend to have a greater concentration of deposits than some of the retail banking competitors, which emerged as a weakness for the lender.

In the last three months of 2022, the bank, at the time Switzerland’s second-largest lender, was hit by CHF111 billion ($123 billion) of outflows. Another CHF61 billion left in the first quarter, with the wealth unit which caters to affluent clients hit the hardest.

Its near-implosion prompted the SNB to step in with emergency funding and to facilitate its takeover by UBS, making the country’s biggest bank even larger.

While it’s early days, the measures under discussion in Switzerland are making some people nervous.

They risk penalising Swiss banks if they were to be introduced only in Switzerland, one of the sources said.

UBS is trying to attract customers with above-market rates on deposits, Reuters reported in October.

The new rules could dent competitiveness or, in a more extreme scenario, push clients to withdraw their money pre-emptively, the person added.

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