Switzerland needs "strong financial sector reforms" in the wake of the state-engineered rescue takeover of Credit Suisse by UBS (UBSG.S), the IMF said on Thursday, the latest international organisation to raise concerns about the mega-merger and its aftermath.
"The state-facilitated acquisition of Credit Suisse by UBS has stabilised the financial markets, but the experience and prospects also call for strong financial sector reforms," the International Monetary Fund said after concluding its review of the Swiss economy.
The IMF's concerns about the enlarged UBS - which has a balance sheet that dwarfs the Swiss economy - follows a similar warning from the Organisation for Economic Cooperation and Development earlier this month.
The Financial Stability Board, a grouping of central bankers, treasury officials and regulators from the group of 20 top global economies, has also highlighted the risk a failure of UBS would pose to Switzerland and urged Bern to strengthen its controls on banks.
Pelin Berkmen, head of the IMF delegation, said lessons from the Credit Suisse case should be used to strengthen regulation and supervision in Switzerland.
Although some progress had been made to improve the resilience of the Swiss banking sector, the IMF's proposals from 2019 remained relevant, she said.
The IMF recommended stronger powers for Swiss financial regulator FINMA, giving it the powers to fine bank executives and announce publicly its enforcement actions.
"We do think that there is a need to increase the powers and resources of the supervisor to enable an early effective intervention," Berkmen told reporters in Bern.
"We mentioned reducing reliance on external auditors, strengthening recovery and resolution planning and implementability, including powers to require changes to bank structures to resolve banks," she added.
Swiss authorities should also address capital and liquidity requirements, Berkmen said, and introduce a more effective public liquidity backstop to give banks access to emergency funding in a crisis.
"The global world has changed, and there are lessons to be learned from the Credit Suisse episode, and this includes changes to capital and liquidity requirements going forward," Berkmen said.
"As to the details of what that should be, that assessment will be done as part of our in-depth review of the financial sector assessment," she said.
The IMF is due to carry out a more detailed assessment of the Swiss financial sector later this year and publish a report in early 2025.
The Swiss government, which is also due to come up with its own proposals on banking regulation in April, said it took note of the IMF's recommendations.
Berkmen said supervising UBS would be challenging, citing the bank's size, complexity and global reach.
"It requires further actions and changes ... in terms of capital and liquidity requirements, and overall too big to fail framework, and those actions will enable a proper supervision and regulation."
Judging the Swiss economy overall, the IMF said the country has "strong fundamentals" but also faced several challenges, including a funding gap in its pension system and vulnerabilities in its real estate sector.
For 2024, the IMF forecast Swiss GDP growth of 1%, when adjusted for sporting events, and 1.7% in 2025, similar to the Swiss government's most recent forecasts for growth at 1.1% and 1.7% respectively.
