Explainer – Credit Suisse crash investigated by Swiss lawmakers

By John Revill and Tomasz Janowski

ZURICH (Reuters) – A rare Swiss parliamentary investigation due to start this week aims to establish what went wrong before the dramatic fall of Credit Suisse (SIX:), once Switzerland’s second biggest bank.

The fifth such probe in the country’s modern history was set up after parliament, in a largely symbolic vote, rejected the government-engineered 109 billion Swiss franc ($122 billion) rescue package to enable the stricken bank’s takeover by UBS (SIX:).

“It will be a reminder to Switzerland we cannot just continue as if nothing happened,” said Peter V Kunz, a professor of business law at Bern University.

Here is what we know about the investigation and some of the questions that remain about its workings:

MANDATE

The 14-member commission will focus on the authorities’ actions before and during the emergency takeover of Credit Suisse rather than its management’s role.

It will examine the conduct of the Swiss cabinet, the finance ministry and other state bodies, such as financial market regulator FINMA and the Swiss National Bank.

The investigation is not a judicial process, but it may provide material for cases launched in the aftermath of the collapse, if it uncovers discrepancies or new information.

These include lawsuits against FINMA over its decision to write down to zero 16 billion francs of AT1 bonds, and by Credit Suisse investors over the share swap ratio with UBS.

KEY QUESTIONS

A critical question will be whether FINMA, the finance ministry and the central bank should have intervened earlier.

It was apparent that Credit Suisse was in difficulties over the last two years after a string of scandals, with customers withdrawing money on a massive scale at the end of 2022.

How much did the authorities know? What was the bank telling the regulator and how much was it sharing with the government?

Could the central bank have done more, for example by promising Credit Suisse unlimited liquidity to reassure customers and stem the outflow of funds?

OUTCOME

The inquiry is expected to summarize its findings in a report, making recommendations to the government and parliament, and likely suggesting specific remedies.

This is unlikely to delve into technical recommendations, such as capital ratios, but focus on how to make FINMA more effective, for example by giving it stronger powers.

It could also consider giving the central bank more powers to supervise big banks, particularly in the context of the new UBS having a balance sheet twice the size of the Swiss economy.

Since the commission cannot draft new laws, any changes will have to go through parliament.

POWERS

The investigative commission is parliament’s most potent tool. It will have access to government meetings’ minutes and other confidential information and those who work for the government, federal administration, the regulator or the central bank must attend its hearings.

It is unclear whether Credit Suisse and UBS executives are obliged to appear if asked, but they are expected to do so due to intense political and public pressure.

The commission has said it could not comment about who had appeared before it until it had completed its work.

BUDGET AND OPERATIONS

The commission has 5 million francs to set up its office, pay its members and hire outside experts and consultants.

The probe is expected to last between 12 and 18 months, with the commission likely to meet every two weeks.

Its meetings will be behind closed doors and there are no plans to open them to the public or broadcast proceedings.

Individual recommendations and the overall report will be agreed by a majority vote and the report will then be presented to both houses of parliament and after that to the government.

MEMBERS

The commission will be chaired by Isabelle Chassot, a member of Switzerland’s upper house of parliament from the centrist Mitte party. Her deputy is Franziska Ryser, a Green party lawmaker in the lower house.

The centrists, the Swiss People’s Party and the liberal FDP have three members each. The Social Democrats and Greens two and the Green Liberals Party one member.

All have been critical of the authorities’ handling of the crisis, calling for stronger financial oversight and expressing concern about the resulting UBS dominance of the Swiss market.

POSSIBLE OUTCOMES

While some experts have said the inquiry offers the Swiss authorities an opportunity to redeem themselves, others have warned it could simply become political theatre.