A Swiss Parliamentary report that is a post mortem on the demise as an independent enterprise of Switzerland-headquartered Credit Suisse blames lax controls by the Swiss Financial Market Supervisory Authority for the bank’s failure, a laxity that occurred despite that same agency’s repeated investigations into the growing weaknesses and failures to perform in the bank. The report also identifies weak bank management and managers as a major contributor to the failure.
Part of the correction to Credit Suisse’s failure was forcing Switzerland-headquarted UBS to “acquire” Credit Suisse. Only now, too, is the regulator proposing increasing capital holding requirements at UBS.
The report is largely correct on the agency reasons for the failure. Whether the forced acquisition works remains an open question: not enough time has passed to make that determination.
My question is this: why did Credit Suisse need saving at all, even if as a subordinate entity owned by another bank?
Leave aside my disdain for Government dictating to private enterprises what they must buy (or not buy), and leave aside the fact that our own government’s hands are unclean in that regard, vis., the Obama administration diktats during the Panic of 2008.
Why not let Credit Suisse simply fail and reorganize itself through bankruptcy or disappear altogether? Given the report’s identification of the weakness of the management team that was running Credit Suisse into the ground, the bank’s unfettered failure would have been an object lesson pour l’encouragement des autres that no bank, no business entity, was zu groß zum Scheitern.
Certainly the turmoil from the bank’s outright failure would have been large, but even at that, the outcome would have done far more to strengthen the Swiss banking system and its larger economy, and done it for a much longer duration.