Swiss Bank Watchdog Blundered on Credit Suisse, Report Finds

The Swiss Financial Market Supervisory Authority (FINMA) has come under scrutiny following the release of its report on the collapse of Credit Suisse. The report, published on December 19, 2023, reveals that FINMA's lack of enforcement of corporate governance and risk management standards contributed to the bank's downfall. Despite identifying serious deficiencies in these areas, FINMA's measures were insufficient to address the long-standing issues, ultimately leading to Credit Suisse's insolvency in March 2023.

FINMA's report highlights that Credit Suisse's Board of Directors struggled to implement strategic changes consistently, leading to volatile earnings and a loss of confidence among clients, investors, and the market. Recurrent scandals further undermined the bank's reputation, while inadequate risk management contributed to various business problems. FINMA's lack of enforcement allowed these issues to persist, ultimately leading to Credit Suisse's insolvency.

The report also reveals that FINMA's insufficient use of its legal powers played a role in allowing Credit Suisse's risk culture to deteriorate. Despite identifying serious deficiencies in risk management and risk culture, FINMA's measures were often limited by its legal powers. The report highlights that FINMA went to the limits of its legal powers but could not enforce long-term solutions. This suggests that FINMA's regulatory framework may have been inadequate to address the systemic issues at Credit Suisse, allowing the bank's risk culture to deteriorate over time.

FINMA's failure to effectively address Credit Suisse's high variable remuneration and weak capital adequacy significantly contributed to the bank's crisis. Despite repeated criticism and interventions, FINMA struggled to enforce lasting changes in the bank's remuneration structure, which remained high even in years with large losses. This encouraged a culture of excessive risk-taking and undermined the bank's long-term stability. Additionally, while Credit Suisse satisfied regulatory capital requirements, its weakest link, CS AG, had the lowest capital adequacy within the group, making it vulnerable to sudden liquidity outflows. FINMA's inability to address these issues more effectively allowed the bank's capital base to erode, ultimately leading to its collapse.

FINMA's overreliance on self-regulation by Credit Suisse's management also contributed to the crisis. Despite FINMA's invasive measures, the bank's governing bodies failed to address long-term organizational shortcomings. Even in years with large losses, variable remuneration remained high, and main shareholders did little to influence it. This lack of accountability and effective governance allowed issues to persist, ultimately leading to the bank's collapse.

FINMA's leniency in enforcing regulations also played a role in Credit Suisse's decline. Despite identifying numerous strategic, management, and risk management failures, FINMA's measures were often insufficient. For instance, while FINMA conducted 43 preliminary investigations and issued nine reprimands, it failed to impose harsher penalties or enforce stricter regulations. This leniency allowed Credit Suisse's problems to persist, ultimately leading to a loss of confidence and solvency.

In conclusion, FINMA's lack of enforcement of corporate governance and risk management standards, insufficient use of legal powers, failure to address high variable remuneration and weak capital adequacy, overreliance on self-regulation, and leniency in enforcing regulations all contributed to Credit Suisse's downfall. The report serves as a wake-up call for FINMA and other financial regulators to strengthen their oversight and enforcement capabilities to prevent similar crises in the future.