On Tuesday, Switzerland’s parliament failed to give its approval for the 109 billion Swiss francs ($120.5 billion) of financial guarantees used to rescue Credit Suisse last month. However, the rejection is largely symbolic as the state had already committed the funds to rescue the bank. The lower house of parliament retrospectively rejected the rescue near midnight, which led to heated debates continuing into the early hours of Wednesday morning. The members discussed other measures related to Credit Suisse while debating the rejection.
Despite the rejection being largely symbolic, it highlights the level of concern and dissatisfaction among the public and politicians over the bailout of Credit Suisse, which suffered significant losses from the collapse of US hedge fund Archegos and the bankruptcy of British supply chain finance firm Greensill Capital. The bank has also been embroiled in a spying scandal that led to the departure of two top executives. As a result, many are calling for greater accountability and transparency in the management of financial institutions, particularly those that receive government bailouts.
Rescue
On Tuesday, Switzerland’s parliament held a rare extraordinary session to discuss the financial guarantees used to rescue Credit Suisse. While the upper house approved the rescue, the lower house failed to do so in a first-round vote, which was largely symbolic given that the state had already committed the funds. However, debates continued into the early hours of Wednesday morning as members discussed other measures related to Credit Suisse. The collapse of Credit Suisse has been blamed on top management, and many in the country have criticized the Swiss government’s open checkbook response to the crisis. The shotgun marriage that saw Credit Suisse taken over by Zurich-based rival UBS for 3 billion Swiss francs and propped up with more than 250 billion Swiss francs in guarantees and support has faced widespread criticism.
As a result, the two chambers of the legislative body will vote again on Wednesday, with the outcome expected to be the same. The Swiss government has also been exploring other measures to address the issues at Credit Suisse, such as imposing tighter regulations on the banking industry and increasing oversight of financial institutions.
Commitment of funds
Despite 29 out of 46 members of Switzerland’s upper house approving the 109 billion Swiss francs ($120.5 billion) of financial guarantees to rescue Credit Suisse earlier in the day, the measure was later rejected by the lower house with 102 of the 200-member National Council voting against it. However, the votes are mostly symbolic as the state has already committed the funds, and the lawmakers cannot overturn that decision.
During the lead-up to the merger last month, a sub-group of six members of parliament used Swiss emergency law to approve the financial commitment on behalf of the legislative body, leaving almost 250 lawmakers without a say. This move caused resentment among some members of the parliament. Hansjoerg Knecht, a member of Switzerland’s Parliament’s upper house, expressed his annoyance with the increasing use of emergency law in the past three years. He stated that the situation, where lawmakers can only approve the already committed credits, was unsatisfactory. Knecht further stated that if Credit Suisse required more cash in the future, the use of emergency law to bypass Parliament should be avoided.
Consequences
Prior to the vote, Switzerland’s finance minister, Karin Keller-Sutter, addressed the Council of States and acknowledged the frustration and anger being voiced by lawmakers. She emphasized that the merger between Credit Suisse and UBS was not a forced marriage but a matter of convenience. Keller-Sutter also raised the need for a discussion around the type of financial center Switzerland wants to be and whether it desires to remain in the top league globally.
She added that this discussion was necessary to evaluate the consequences of the Credit Suisse debacle on the financial regulator and politics. She emphasized that there needed to be a certain level of risk carried out in the future if Switzerland desired to achieve its goals.
