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.
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)
