UBS’s recovery and emergency plans will be revised due to the takeover of Credit Suisse.
The Swiss Financial Market Supervisory Authority (FINMA) has suspended the annual approval of the recovery and emergency plans and determined that the integration of CS requires adjustments by UBS to ensure continued resolvability.
FINMA expects UBS to further develop its resolution planning. In line with the TBTF Report of the Swiss Federal Council, amendements to legislation are necessary to provide authorities with more options to increase flexibility in case of a crisis.
In its assessment of UBS’s resolvability as at 31 December 2023, FINMA determined that the integration of Credit Suisse had created obstacles. FINMA is of the opinion that if the preferred restructuring strategy were to be applied, UBS could be resolved today by means of “single point of entry” recapitalisation. UBS continues to fulfil the requirement for loss absorption capacity.
However, due to the integration, it must harmonise the group structures, processes and IT platforms. The identified obstacles are currently being overcome by means of manual data aggregation until all processes function as automatically as possible again and the data is transferred to the strategic systems.
At the same time, the current resolution strategy for UBS only provides for the continuation of business activities as part of a restructuring of the business model. Based on the experience of the Credit Suisse crisis, additional options for action are required to further strengthen crisis preparations and resolution planning for systemically important banks. Accordingly, FINMA also expects UBS to review its recovery and emergency plans. It has therefore suspended the annual assessment of these plans for 2024.
UBS’s resolution planning must be further developed in order to increase the options for action available if there is a risk of insolvency. In addition to the going concern strategy, it must be possible to exit the market by selling or winding down individual business segments as well as selling the bank without jeopardising the stability of the financial system and without using taxpayers’ money. These options must be prepared by the bank in the coming years and are consistent with the proposals in the TBTF report.
At the same time, it is essential that the necessary foundations are created at the statutory level so that these options can be implemented with legal certainty. A further prerequisite is that they can be combined with a bail-in and the public liquidity backstop (PLB) to ensure that there is sufficient liquidity support during the resolution in addition to sufficient capital.
As a global systemically important bank, UBS must be capable of being resolved at any time. FINMA assesses the resolvability of UBS annually and shares the results with the Financial Stability Board (FSB), which conducts a survey (“Resolvability Assessment Process”) for all global systemically important banks. In line with its statutory remit, FINMA regularly reports to the public on the status of work on the resolution, recovery and emergency planning of systemically important banks and systemically important financial market infrastructures.
As a global systemically important bank, UBS has to fulfil special crisis prevention requirements. It draws up recovery and emergency plans, both of which are assessed annually by FINMA. The recovery plan describes how a destabilisation or risk of insolvency is to be averted through the company’s own efforts. The emergency plan shows how the systemically important functions can be maintained if stabilisation attempts are unsuccessful.
FINMA expects UBS to take into account the experience gained from the recent crisis, in particular the speed and extent of deposit withdrawals, in its assumptions. Liquidity-generating measures must be calculated even more conservatively and prepared even more comprehensively.
UBS’s emergency plan must ensure that the Swiss entity can continue to operate its systemically important functions without interruption even if there is a risk of insolvency. The decision to integrate Credit Suisse (Schweiz) AG into UBS Switzerland AG will have a significant impact on UBS’s emergency plan, which will also have to be thoroughly revised. FINMA has therefore suspended the assessment of UBS’s emergency plan for 2024.
In its emergency plan, UBS must in particular revise the liquidity planning and the refinancing of the Swiss entity when the emergency plan is activated. Adjustments to the accounting model in connection with business activities that go beyond the systemically important functions must be specifically taken into account in emergency planning.
