The two Swiss major banks have changed their legal structure. Towards the end of 2016, Credit Suisse launched its new subsidiary Credit Suisse (Schweiz) AG, which comprises the universal bank's business for Swiss customers. UBS already spun off the areas retail & corporate and wealth management booked in Switzerland into UBS Switzerland AG in June 2015. What is the background of these structural changes? And what do they mean for the two major banks' customers?
Background of the structural changes
The reorganisations serve to implement new regulations which have been adopted to strengthen the stability of the Swiss financial sector following the financial crisis. The new rules aim, among other things, to ensure the continuity of economically important functions in times of stress and to avoid the need for state aid ("too big to fail"). They apply to banks which have been declared systemically important by the Swiss National Bank (SNB) because their default would substantially harm the Swiss economy and the Swiss financial system. This includes the two major banks UBS and Credit Suisse in particular.
Improved resolvability
Whether a bank can be successfully turned around or liquidated without impairing systemically important functions depends, among other things, on its structure and organisation. A restructuring must be implemented very quickly (ideally over the weekend when the markets are closed) to offer the prospect of a lasting stabilisation.
Systemically important banks are therefore asked to proactively improve their resolvability. The Swiss Banking Ordinance envisages possible measures in three areas:
- Structural improvements and unbundling (e.g. by aligning legal structures with business units, by establishing legally independent service units, and by establishing independent governance structures).
- Financial unbundling to reduce the risk of contagion (e.g. by limiting unsecured funding and guarantees between legal entities within the group).
- Operational unbundling for the protection of data and the continuation of important operational services (e.g. by access to and continued use of operationally critical systems).
So why these structural changes?
The two major banks have decided to improve their resolvability by (among other things) spinning off certain business areas into separate subsidiaries. Banking regulation can be seen to have prompted this for two reasons:
Authors: Jana Essebier, David Weber
