Swiss Central Bank Gets New Chief Amid Ongoing Credit Suisse Probe

The newly appointed President of the Swiss National Bank, Martin Schlegel, will take office this coming Tuesday, yet there is no consensus on the central bank's handling of the bankruptcy of Credit Suisse and its subsequent acquisition by UBS Group (UBS.US). Schlegel, currently the Vice Chairman of the Swiss National Bank, has been a close aide to Thomas Jordan, who has served as the President of the Swiss National Bank for a long time. On Tuesday, he will step into the parliamentary investigation on how the Swiss authorities handled the collapse of Credit Suisse, with the results to be announced in the coming weeks.

A Swiss media report in July suggested that the secret committee of parliamentarians responsible for the investigation would criticize the Ministry of Finance, the financial market supervisory authority FINMA, and the Swiss National Bank for their handling of the events last year that ultimately led to the collapse of Switzerland's second-largest bank.

Advertisement

In a report submitted to the Swiss Ministry of Finance at the end of 2023, former Deputy Governor of the Bank of England, Paul Tucker, wrote, "It is regrettable that the Swiss authorities were unprepared to prevent or contain the disintegration of the company."

The Swiss government, the Swiss National Bank, and the country's regulatory authorities intervened in March 2023 to help the 167-year-old institution merge with UBS, following a series of financial setbacks and significant capital outflows over several months at Credit Suisse.

Some Swiss economists and business leaders have said that the Swiss National Bank did not do enough, reacting too slowly to the evolving crisis and being too rigid in providing emergency funds, merely hoping that Credit Suisse could save itself.

"The disaster at Credit Suisse shows that the Swiss authorities, including the Swiss National Bank, were not fully prepared for the impending crisis," said Yvan Lengwiler from the University of Basel, who is a member of the Swiss National Bank's observation group that studies the central bank.

"On the one hand, it is an incentive to do better in the future, but it also raises doubts about how the financial system would perform if UBS found itself in a similar situation."

Will the new President make changes?

According to insiders, Jordan, who led the Swiss National Bank's response to the Credit Suisse bankruptcy, met with government ministers and bankers during 2022.Jordan and Schlegel worked together to provide billions of Swiss francs in emergency liquidity, first to keep Credit Suisse afloat, and then to mitigate the acquisition of it by UBS.

In July of this year, Jordan blamed the bank management of Credit Suisse for the collapse of the bank, stating that the actions of the Swiss authorities prevented a global financial crisis.

Schlegel defended the practices of the Swiss National Bank, especially against the calls for the nationalization of Credit Suisse, while the Swiss National Bank listed a series of lessons to be learned.

A key task for the new governor, who is responsible for banking stability in the management committee of the Swiss National Bank, will be to help formulate regulatory provisions, including stricter capital provisions envisioned for the newly expanded UBS, although the government and parliament will have the final say.

He said in an interview last week: "We are working closely with the government and FINMA to propose good measures." "Learning is very important... drawing the right conclusions and proposing the right measures."

Despite the ongoing issues in banking regulation, the Swiss National Bank has been praised for controlling inflation. Last month, the inflation rate of the Swiss National Bank fell to 1.1%.

Stefan Gerlach, chief economist at EFG bank, said that maintaining the central bank's good record in monetary policy will be a focus for the new Swiss National Bank chairman, although Jordan will be "a hard act to follow" in terms of monetary policy.

"Schlegel grew up at the Swiss National Bank, so I don't expect any changes, at least not initially," said Thomas Stucki, chief investment officer at St Galler Kantonalbank and former head of asset management at the Swiss National Bank.

As Switzerland tries to emerge from the Credit Suisse crisis, it seems unlikely that Schlegel will try to distinguish himself from Jordan.

When asked how his approach differs from that of his predecessor, Schlegel said: "I think the important question is, what is the same." "And 'unchanged' will be the central bank's mission and focus on price stability."