The regime tested: March 2023

Three options on the weekend of 18 and 19 March

The collapse of Credit Suisse is the subject of the next chapter, and only the aspects that concern the design of the TBTF regime are discussed here. When the bank’s situation became critical in the week of 13 March 2023, the authorities had prepared three options. FINMA’s own account, published in December 2023, describes them. The first was a merger of Credit Suisse into UBS. The second was a restructuring under the TBTF regime, for which FINMA had prepared the restructuring ruling, the restructuring plan and a ruling appointing a restructuring agent. In that scenario the share capital and the additional tier 1 instruments would have been completely written off and the bail-in bonds converted into equity. The third option, reserved as a last resort, was bankruptcy combined with the execution of the Swiss emergency plan.¹

The authorities chose the merger. FINMA gave several reasons. A private solution was preferable to measures imposed by the state. A merger with a strong partner would instil immediate confidence, whereas a restructuring by official decree might not have fully restored it. A restructuring of a global systemically important bank at a time of great uncertainty on the financial markets would have been associated with greater risks. A merger was a process that had been tried and tested in practice and was not fraught with the many uncertainties and risks of a first-time restructuring of a global systemically important bank with a bail-in untested on this scale. Finally, FINMA pointed to an asymmetry: if the merger had failed, the gone-concern capital of Credit Suisse would still have been intact for a restructuring, whereas a failed restructuring would have left bankruptcy as the only option.²

The Federal Council’s report of April 2024 adopted the same line. It stated that the loss of confidence in Credit Suisse had been so extensive that it was highly questionable whether a further capital increase together with the announcement of a new repositioning could have restored the necessary confidence. The resolution of a G-SIB in particular carried risks that had to be taken seriously, including legal and implementation risks at international and national level, and implementing the restructuring plan drawn up for Credit Suisse would have entailed considerable disadvantages and risks compared with the solution ultimately implemented.³ The report also recorded that the chosen solution had led to a rapid stabilisation of the financial markets.

What the choice means for the regime

The decision not to use resolution has been read in two opposite ways. For critics, it proved that the TBTF regime had failed at the moment of truth: after more than a decade of planning, capital raising and reorganisation, the authorities did not trust their own instrument and returned to the method of 2008, a state-supported solution arranged over a weekend. For defenders, it showed that the regime had worked in a less visible way. Its existence created a credible alternative that strengthened the negotiating position of the authorities, while the gone-concern capital provided a reserve that would have remained available if the merger had failed. The Federal Council’s report noted that capital of around CHF 55 billion would have been available for a resolution thanks to the gone-concern requirements. In its view, the regime had probably also contributed to Credit Suisse’s substantial reduction of its total assets in the preceding years.⁴

Both readings contain truth and can be reconciled. The regime achieved much of what it was designed to do on paper. Credit Suisse had loss-absorbing capacity far above the international minimum, a legal structure adapted to single point of entry resolution and an approved emergency plan for its Swiss business. What the regime had not achieved was the confidence of the authorities that a bail-in of a G-SIB could be carried out in turbulent markets, across several jurisdictions and within a weekend, without triggering contagion. The SNB acknowledged this point in its Financial Stability Report of 2024, which referred to potential obstacles to the execution of a resolution, in particular legal risks and possible contagion effects in the case of a bail-in.⁵ A resolution regime that the authorities hesitate to use has limited deterrent value, because creditors will price the likelihood of a rescue. The persistence of the implicit guarantee, which the Federal Council had identified in 2015, was confirmed by the events of 2023.

The write-down of the additional tier 1 instruments of Credit Suisse, amounting to CHF 16 billion, belongs to the same analysis. Under the merger solution, FINMA ordered Credit Suisse to increase its capital by writing off these instruments, without writing off the share capital and without a bail-in of the other bonds.⁶ The legal dispute that followed, including proceedings before the Federal Administrative Court, is discussed in chapter G.V. For the purposes of this chapter, the episode shows that the instruments created in the wake of the 2010 report did in fact absorb losses in 2023, but in a sequence that reversed the ordinary expectation of investors, since shareholders received a payment from UBS while the holders of the convertible instruments lost everything. The Federal Council’s report of 2024 asked why the additional tier 1 instruments had not been able to fulfil their intended loss-absorbing role on a going-concern basis earlier in the crisis.⁷

The lessons identified

The official examinations of the crisis agree on several weaknesses in the design of the regime. The first concerns the recovery phase. The Federal Council concluded that the implementation and effect of the recovery plan during the crisis had to be viewed critically. The measures taken were far from sufficient because their implementation had not been prepared, their impact was insufficient, the bank’s management was unwilling to act, and FINMA could not compel the activation of the plan.⁸ FINMA itself noted that it had last reviewed and approved Credit Suisse’s recovery plan in 2022 and that the crisis showed that some measures could not be implemented in the planned form.⁹

The second weakness concerns liquidity. Although Credit Suisse met the regulatory liquidity requirements, the loss of confidence led to very rapid and extensive outflows, which FINMA described as a digital bank run.¹⁰ The SNB’s ordinary emergency liquidity assistance was far from sufficient, and additional state liquidity had to be provided under emergency law.¹¹ The FSB’s peer review described the two instruments used in March 2023. ELA+ consisted of unsecured loans with a preferred creditor status for the SNB in bankruptcy. The public liquidity backstop combined a preferred creditor status for the SNB in insolvency with an indemnity by the Confederation for any losses. Both were granted under the emergency ordinance of 16 March 2023. The FSB stressed that it was important to adopt the legislation for a public liquidity backstop so as to provide an effective backstop funding mechanism.¹²

The third weakness concerns capital at the level of the parent bank. The Federal Council found that the capital requirements were not forward-looking and that the capitalisation of the parent bank, Credit Suisse AG, proved to be a critical point.¹³ FINMA added that Credit Suisse AG had the weakest capital situation within the group and thus represented the weakest link in the chain. The fourth weakness concerns supervisory powers. FINMA wrote that the legal framework severely restricted its influence on governance. It had no senior managers regime and no power to impose fines, nor could it regularly publish its enforcement proceedings.¹⁴ The FSB made the same observation, noting that FINMA’s tools were more limited than those of its peers.¹⁵

The fifth weakness concerns resolution planning itself. FINMA concluded that resolution plans had to be adapted to faster bank runs and to a greater number of crisis scenarios, supported by regular crisis exercises with the relevant authorities.¹⁶ The FSB recommended strengthening the legal basis for requiring structural changes to address impediments to resolvability, publishing FINMA’s expectations on resolvability, and clarifying the criteria for determining that a bank was no longer viable.¹⁷ In its report of April 2024 the Federal Council proposed 37 measures in six fields: corporate governance and supervision, capital requirements, early intervention and recovery, liquidity in a crisis, resolution planning, and crisis organisation.¹⁸ The implementation of these measures is the subject of chapter G.VI.

The report of the Parliamentary Investigation Committee, published on 20 December 2024, added a political dimension. It found that Credit Suisse had declined to use the SNB’s emergency liquidity assistance in October 2022 out of concern for its reputation, and that Switzerland had lacked a public liquidity backstop that might have allowed an earlier confidence-building intervention. The committee also concluded that the merged UBS required stricter regulation and internationally coordinated crisis planning because of its size in relation to the Swiss economy.¹⁹

Notes

1. FINMA, Lessons Learned from the CS Crisis (as above), pp. 19–20. ↩
2. FINMA, Lessons Learned from the CS Crisis (as above), p. 21. ↩
3. Federal Council, Report on Banking Stability, 10 April 2024, https://www.newsd.admin.ch/newsd/message/attachments/87002.pdf, pp. 18, 20, 46 and 134. ↩
4. Federal Council, Report on Banking Stability (as above), pp. 18–19. ↩
5. Swiss National Bank, Financial Stability Report 2024, https://www.snb.ch/public/asset/en/www-snb-ch/publications/financial-stability-report/2024/stabrep_2024/publications0_en/stabrep_2024.en.pdf, p. 10. ↩
6. FINMA, Lessons Learned from the CS Crisis (as above), p. 19. ↩
7. Federal Council, Report on Banking Stability (as above), p. 19. ↩
8. Federal Council, Report on Banking Stability (as above), p. 20. ↩
9. FINMA, Lessons Learned from the CS Crisis (as above), p. 8. ↩
10. FINMA, Lessons Learned from the CS Crisis (as above), p. 7. ↩
11. Federal Council, Report on Banking Stability (as above), pp. 19–20. ↩
12. FSB, Peer Review of Switzerland (as above), p. 27. ↩
13. Federal Council, Report on Banking Stability (as above), p. 19. ↩
14. FINMA, Lessons Learned from the CS Crisis (as above), pp. 7–8. ↩
15. FSB, Peer Review of Switzerland (as above), p. 14. ↩
16. FINMA, Lessons Learned from the CS Crisis (as above), p. 8. ↩
17. FSB, Peer Review of Switzerland (as above), p. 6. ↩
18. Federal Council, Report on Banking Stability (as above), pp. 26–28, table 1. ↩
19. Blick, “Die zehn wichtigsten Erkenntnisse der PUK zum Ende der Credit Suisse” (as above). ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of September 2025.