The Swiss finance minister points out legal risks for liquidating global banks

ZURICH (Reuters) – International financial authorities must take into account legal risks surrounding the possible liquidation of global banks, Swiss Finance Minister Karin Keller-Sutter said on Wednesday.

In an interview with the Frankfurter Allgemeine Zeitung newspaper, Keller-Sutter was asked whether the rules for dealing with banks deemed ‘too big to fail’ should be internationally standardized so that such lenders can be liquidated.

Keller-Sutter said she was in contact about this with the Financial Stability Board, a body that oversees the global financial system, and with other finance ministers, including Germany’s Christian Lindner, whom she is meeting in Berlin.

“I want to raise awareness that liquidating (a bank) is sometimes not possible due to international legal risks. In the case of Credit Suisse, that was clearly a risk,” she said, referring to the Swiss bank that went bankrupt. last year.

“There are significant doubts whether recapitalization through mandatory creditor participation, i.e. a ‘bail-in’, would work,” Keller-Sutter said.

“I mainly look at the United States. The big banks have invested heavily there. That is why the American regulators should agree to a liquidation.”

Managing this risk is why the Swiss government wanted systemically important banks to support their foreign subsidiaries with up to 100% equity, she said.

“The equity support of the foreign subsidiary must be such that it can be sold or liquidated in a crisis without harming the Swiss parent company. That was exactly the problem with Credit Suisse,” she said.

Credit Suisse’s demise roiled financial markets and led to its takeover by long-time rival UBS, prompting the Swiss government in April to impose its own measures on ‘too big to fail’ entities.

UBS formally acquired Credit Suisse’s parent company last week. Credit rating agency S&P on Tuesday upgraded UBS Group AG’s outlook from negative to stable, saying “the tail risks of the group’s integration and restructuring have diminished.”

(Reporting by Dave Graham; Editing by Mrigank Dhaniwala)