Newsletter 101 from September 18, 2009 FINMA Issues Report on Financial Market Crisis

Newsletter 101 - FINMA Issues Report on Financial Market Crisis - The report issued by FINMA entitled “Financial Market Crisis and Financial Market Supervision” provides a full analysis of the financial market crisis and the subsequent decisions and actions taken by the Swiss Federal Banking Commission (SFBC). None of those involved identified the origins of the crisis in time; nor did they recognise the full extent of the threats it posed. Moreover, the study points out certain weaknesses and a partial lack of effectiveness in banking supervision. However, the report concludes that the SFBC did respond swiftly and decisively, and that fundamental decisions to stabilise the financial centre were taken in targeted and timely fashion. The SFBC quickly learned its lessons from the crisis and implemented corrective actions. The magnitude and depth of the worldwide financial market crisis took all participants by surprise. None of those involved identified the origins of the crisis in time; nor did they recognise the full extent of the threats it posed. In this report, FINMA closely reviews the financial crisis and the subsequent decisions and actions taken by the Swiss Federal Banking Commission (SFBC). Its objective is to draw further lessons that should be learned from the crisis. The report will also serve as the basis for a formal response to two parliamentary initiatives (proposal by Eugen David [Member of Parliament] and motion by the Committee for Economic Affairs and Taxation of the National Council). As one of the three supervisory authorities operating prior to the establishment of FINMA, the SFBC paid particular attention to the two major banks, both before and during the crisis. With the outbreak of the crisis in August 2007, the SFBC changed its functions and moved into active crisis mode, increasing supervision of the two big banks, especially UBS. Parameters critical to the stability of the financial institutions, such as capitalisation and liquidity, were monitored continuously, and corrective measures were taken, such as requests for increases in share capital where appropriate. The SFBC devoted as many staff resources as possible to these efforts. With hindsight, however, weaknesses can be identified both in the early detection of risks and in the implementation of measures. Nonetheless, management of the crisis has worked well up to now because the authorities were ready to cope with a crisis at one of the major banks and targeted and consistent actions were taken when the crisis erupted. The SFBC quickly learned its lessons from the crisis and implemented corrective actions. The capital adequacy regime for the major banks, already well above international standards in 2007 and 2008 due to the “Swiss finish”, was tightened significantly once again. Additional rules were put in place to surmount the liquidity crisis. A circular on incentive schemes will be approved this year and come into effect on 1 January 2010. The SFBC has been integrated into the Swiss Financial Market Supervisory Authority (FINMA) since 1 January 2009. The reason why FINMA was set up as an integrated financial market regulator was not connected with the crisis. Even so, FINMA’s present structure is an advantage when it comes to the demanding job of dealing with dynamic and increasingly complex financial markets. As a direct result of the financial market crisis, FINMA is now further developing its supervisory approach in concrete projects and is escalating its supervisory capability in specific areas. Practical experience gained in senior finance and risk management positions is increasingly in demand. The complete report including a glossary and the key points may be found at http://www.finma.ch.Contact Alain Bichsel, Head of Communication, Tel. +41 (0)31 327 91 70, alain.bichsel@finma.ch