Newsmaker: New Swiss central bank chief takes charge in shadow of Credit Suisse trauma

St Galler Kantonalbank AG

30/09/2024 05:00

* 
      Schlegel steps in amid a parliamentary investigation on
Credit
Suisse collapse
    

        * 
      Some experts have criticised the SNB's handling of the
crisis 
    

        * 
      Schlegel aims to maintain focus on price stability
    

        * 
      Discussions under way over tougher capital rules for UBS
    

  
    By John Revill
       ZURICH, Sept 30 (Reuters) - As the Swiss National Bank's
new chairman Martin Schlegel takes office this week, the jury is
out on the central bank's handling of the Credit Suisse crash
and its takeover by UBS  UBSG.S .
    Schlegel, currently the SNB vice-chairman and a close
associate of long-term chief Thomas Jordan, steps in on Tuesday
with a parliamentary investigation into how Swiss authorities
handled Credit Suisse's collapse due to be published in the
coming weeks.
    A Swiss media report suggested in July the secretive
committee of lawmakers charged with the inquiry will be critical
of how the finance ministry, financial market regulator FINMA
and the SNB managed the events that ultimately sank the
country's second-biggest lender last year.
    "The Swiss authorities proved woefully unprepared to head
off or contain the firm's unravelling," Paul Tucker, a former
Bank of England Deputy Governor, wrote in a report to the Swiss
Finance Ministry published in late 2023.
    The Swiss government, the SNB and the country's regulators
stepped in to help merge the 167-year-old institution into UBS
in March 2023, following a string of financial setbacks and
months of massive outflows at Credit Suisse.
    Some Swiss economists and business leaders say the SNB fell
short, reacting too slowly to the unfolding crisis, was too
inflexible about providing emergency funding, and simply hoped
that Credit Suisse would be able to save itself.
    "The calamity of Credit Suisse has demonstrated that Swiss
authorities, including the SNB, were not sufficiently prepared
for this looming crisis," Basel University's Yvan Lengwiler, a
member of the SNB Observatory group which studies the central
bank, told Reuters.
        "On the one hand, this is an incentive to do better in
the future, but it also casts doubt on how the system will
behave should UBS ever find itself in a similar situation."
    
    MORE OF THE SAME? 
    Chairman Jordan led the SNB's response to the Credit Suisse
collapse, meeting with government ministers and bankers during
2022, sources with knowledge of the situation have told Reuters.
    He and Schlegel, 48, worked together providing billions of
Swiss francs in emergency liquidity, first to keep Credit Suisse
alive, then to ease its takeover by UBS. 
    Jordan in July blamed Credit Suisse's bank management for
the bank's collapse and said the action by Swiss authorities
prevented a global financial crisis. 
    Schlegel has defended the SNB's approach, particularly
against calls to nationalise Credit Suisse, while the central
bank has drawn up a list of lessons to be learned.
    A key task for the incoming chief, who was responsible for
banking stability in the SNB governing council, will be to help
shape regulations including tougher capital rules envisaged for
the newly enlarged UBS, although government and parliament will
have the final say.
    "We are working closely with people from the government and
also from FINMA to come up with good measures," he told Reuters
in an interview last week. "It's very important that we learn...
draw the right conclusions and come up with the right measures."
    While questions remain about banking oversight, the SNB has
won plaudits for keeping inflation, which eased to 1.1% last
month, in check. 
    Maintaining the bank's good track-record on monetary policy
will be a key focus for the new SNB chairman, although Jordan
will be "a tough act to follow in monetary policy," said Stefan
Gerlach, chief economist of EFG Bank.
    Schlegel, a vegetarian bass guitar player and an enthusiast
of the kalimba, a musical instrument from Zimbabwe, appears
somewhat more unconventional than the austere Jordan.
    But analysts foresee continuity with his former boss, his
supervisor when he joined the SNB's research department in 2003,
with Schlegel once joking in a Swiss newspaper interview that he
was still "in a way" Jordan's intern.
    "Schlegel grew up at the SNB so I don't expect any changes,
definitely not in the beginning," said Thomas Stucki, Chief
Investment Officer at St Galler Kantonalbank and a former head
of asset management at the SNB. 
    Whether Schlegel will try to differentiate himself clearly
from Jordan as Switzerland tries to move beyond the Credit
Suisse crisis appears unlikely.
   "I think the important question is what will be the same,"
Schlegel told Reuters when asked how his approach may differ
from his mentor's. "And 'the same' will be the mandate and the
focus on price stability."
    ($1 = 0.8446 Swiss francs)

 (Reporting by John Revill
Editing by Dave Graham and Lisa Jucca)
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