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The failure of Credit Suisse Group shows that Europe’s top lenders would still need liquidity assistance from central banks if they were to collapse, according to a top regulator.
That case made clear that the needs of a so-called global systemically important bank in crisis would outstrip the bloc’s bank failure fund, as well as a planned additional facility, the Single Resolution Board told national officials last week in a closed-door presentation obtained by Bloomberg.
Regulators around the world have sought to put an end to taxpayer support for failed lenders after the 2008 financial crisis.
The fact that Swiss citizens and the country’s central bank had to provide support for UBS Group’s emergency takeover of Credit Suisse was a painful reminder that the top banks are still too big to fail.
The Swiss National Bank agreed to provide additional liquidity lines of 200 billion Swiss francs (US$223 billion) in total as part of the Credit Suisse deal.
UBS chief executive officer Sergio Ermotti said last week that losses for the Swiss government or SNB are “exceptionally unlikely.”
The neighbouring European Union will finish building up its Single Resolution Fund by the end of this year and is working to double the size of that facility with a so-called backstop.
The SRF is based on contributions from banks and stood at €66 billion ($71.3 billion) in July.
It will ultimately amount to at least 1 percent of covered deposits in the 21 countries that are part of the so-called banking union.
“The Swiss case confirmed that the needs of a G-SIB could go beyond the SRF and its backstop,” according to the presentation by Sebastiano Laviola, a board member at the SRB. “Involvement of the Eurosystem is still needed.”
The Eurosystem comprises the European Central Bank and the national central banks of the countries that have adopted the euro. The EU counts eight G-SIBs: Banco Santander, BNP Paribas, Credit Agricole Group, Deutsche Bank, Groupe BPCE, ING Groep, Societe Generale and UniCredit.
The SRB is Europe’s authority for handling failed banks and is a key player in keeping the region’s financial system prepared for crises.
The example of Credit Suisse also shows that having liquidity facilities in place that are communicated to investors “reduces risks of contagion and supports resolution strategies,” according to Laviola’s presentation.
There was limited impact on European banks from the events at Credit Suisse and the recent collapse of several US banks, according to the presentation.
That supports the validity of EU banking rules, but should not be a reason for complacency, Laviola said. — Bloomberg
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