Eurasia Press & News
The government’s handling of the Credit Suisse meltdown was rejected by a frosty parliament this week during an extraordinary session on the historic UBS takeover. But the vote against the rescue plan has no legal consequences and has been all but ignored by financial markets and international media.
On March 19, the government used emergency powers to stump up CHF109 billion ($122 billion) to underpin the buyout of ailing Credit Suisse by UBS. Parliament was bypassed on how to save the country’s second-biggest bank.
The refusal this week of one of the two parliamentary chambers (the House of Representatives) to approve the state guarantees is thus purely symbolic. However, it does mark a stinging rebuke for the government, which now knows it doesn’t have legislative backing.
Speaking during the session, Finance Minister Karin Keller-Sutter repeated – in vain – that ministers had acted in an emergency to avoid serious damage to the country. “We were dealing with a patient who had already contracted a chronic disease,” she told parliamentarians. Current Swiss President Alain Berset also tried to play down the issue: “The end of Credit Suisse is not the end of Switzerland,” he said.
But the arguments did not convince lawmakers, and the House of Representatives rejected – for a first time – the state guarantees after a marathon debate stretching well into the early hours of Wednesday.
Unholy alliance
For its part, the other parliamentary chamber, the Senate, backed the government’s plan while making a conciliatory gesture towards the House of Representatives.
Senators proposed making the state guarantees conditional on several measures: a reform of the banking law to minimise the risks related to big banks; a government analysis on possibly raising minimum equity requirements; and a crackdown on bonuses.
But even this wasn’t enough for the House of Representatives, which rejected the Senate compromise with a majority driven by an unlikely alliance of left-wing Social Democrats, Greens, and the right-wing Swiss People’s Party.
The left-wing groups were sceptical about the impact of new equity and bonus rules; the People’s Party was against state guarantees full-stop. “Too big to fail” banks should simply not exist in Switzerland, the conservative group said.
This second refusal by the House of Representatives brought an end to the extraordinary session after just two days, rather than the three that were set aside.
International indifference
The slap on the wrist to government was however barely noticed beyond Swiss borders, with international media giving only limited attention to the decision.
Financial markets didn’t jump either. During the session, some politicians had raised the spectre that rejecting the plan would cause more instability and further tarnish Switzerland’s reputation. But this hasn’t turned out to be the case. “The state financial guarantees remain in place anyway,” says economist Stéphane Garelli. “This decision has therefore had no impact on markets, and there is no sign of instability.”
Garelli, a professor at the International Institute for Management Development in Lausanne, also reckons the vote by parliament is simply irrelevant abroad. “This is domestic Swiss stuff,” he says. “Such a political reaction was to be expected.” Different questions spark interest globally. “Abroad, the main issue is whether the 29 other ‘too big to fail’ global banks are facing a similar meltdown, and whether we are going to put in place new rules to control these institutions.”
‘Live with the risk’
As such, Switzerland might well come under a stronger spotlight when it discusses concrete measures to avert another crisis. For now, however, parliamentarians have only managed to agree on making the government draft various reports – for example on possible bonus caps and the raising of equity requirements.
Garelli is sceptical about the chances of bigger reforms. “You have to live with the risk: you can manage it, but not avoid it,” he says. For him, politicians have limited room for manoeuvre. “The financial sector is evolving so fast – especially with new technologies – and regulations are always lagging behind. We must mainly depend on the ethical responsibility of banking directors and on the oversight work of management boards,” he says.
