Exclusive: Swiss Authorities and Banks Consider New Rules to Prevent Bank Runs – Sources by Reuters

By Stefania Spezzati, Oliver Hirt, and Elisa Martinuzzi

LONDON/ZURICH – Swiss authorities and major banks, including UBS, are currently deliberating new strategies to avert potential bank runs following the emergency rescue of Credit Suisse earlier this year. These discussions, which have not been previously disclosed, are part of a comprehensive review of Switzerland’s banking regulations and are primarily focused on the country’s largest financial institutions, particularly affecting wealth clients.

Among the proposals under consideration is the suggestion to extend the timeframe for allowing withdrawals, potentially staggering them over longer periods. Additionally, the idea of implementing fees on withdrawals is being contemplated. There are also discussions about incentivizing customers to keep their funds in the bank longer by offering higher interest rates.

The talks are still in the early stages, with the Swiss National Bank and the Swiss Finance Ministry involved in the negotiations with banks. A representative from the finance ministry indicated that the matter of bank runs is included in a broader assessment of the regulatory framework concerning institutions deemed “too big to fail.” A formal report from the Swiss government is expected next spring.

The Swiss National Bank is currently reviewing regulations that are aimed at systemically important banks, but it has refrained from commenting on the specifics of ongoing discussions.

Meanwhile, UBS shares experienced a decline of 1.8% in Zurich, making it the largest loser within the Financial Services Index. Although it remains unclear which other banks are engaged in the discussions with Swiss regulators, institutions like UBS, Raiffeisen Group, Zürcher Kantonalbank, and PostFinance are recognized as systemically important, meaning their downfall could have significant repercussions for the Swiss economy and financial system.

Some banks have openly stated they are not involved in these discussions. A spokesperson for PostFinance confirmed their lack of participation, while Zürcher Kantonalbank refrained from comment, and Raiffeisen’s spokesperson was not immediately available for response.

Earlier this year, the banking sector saw significant deposit withdrawals, with both regional U.S. banks and Credit Suisse facing considerable outflows, leading to interventions by regulators to avert broader financial turmoil. This sparked a global focus on the risks associated with bank runs, which have been exacerbated by the rise of digital banking.

Regulators must ensure that banks maintain sufficient financial buffers in the wake of technological advancements that could heighten the risk of rapid deposit exits, emphasized Andrew Hauser, an executive director at the Bank of England, during a recent conference.

In the case of Credit Suisse, a historic exodus of deposits nearly led to the bank’s collapse in March, particularly affecting its wealth management division, which had a high concentration of funds. In just the last quarter of 2022, the bank experienced outflows totaling 111 billion Swiss francs, with an additional 61 billion Swiss francs departing in the first quarter of the following year. The instability necessitated emergency assistance from the Swiss National Bank and contributed to UBS’s acquisition of Credit Suisse, thereby increasing UBS’s market dominance.

Swiss National Bank Chairman Thomas Jordan noted that the Credit Suisse situation illustrates how rapidly customer deposits can diminish, highlighting the need for liquidity regulations to be adapted to reflect this new reality.

While the discussions about new measures are in their infancy, they have raised concerns among stakeholders. Some fear that implementing these rules could negatively impact Swiss banks’ competitiveness, and in extreme cases, may lead clients to withdraw their funds preemptively.