Switzerland: the Battle for Bank Separation Has Begun!

The Swiss government’s bailout of Credit Suisse, disguised as a takeover by UBS, was rejected by the National Council, the lower house of parliament, during the April 11-13 parliamentary session. A clear majority of MPs rejected the too-big-to-fail (TBTF) policy, requested more bank regulation, including separation of commercial from investment banking, and demanded the government refrain from using the emergency law invoked for Credit Suisse in future banking crises.

As expected, the Council of States (upper house) voted in favor of the government, but the Swiss constitution requires support from both chambers to ratify government actions. Formally, the vote does not nullify the bailout, as per the emergency law, but politically, as a Swiss economist told EIR, it’s “a slap on the face” to the government.

The rejection of the bailout reflects the widespread sentiment in the Swiss population, that the CS-UBS operation has created a bigger and even more bankrupt mega-bank. The government and the central bank (SNB) have put together more than €250 billion in credits and guarantees for the new monster-bank, backed by dollar swap agreements between the SNB and the Federal Reserve, in the hope it will suffice to cover liabilities to other TBTF U.S. banks.

It is estimated that the combined toxic assets in CS-UBS amount to €80 to 100 billion, but nobody really knows. Most open derivative contracts owned by the two banks are over-the-counter and have U.S. banks as counterparty. This is certainly not the end of the story, but rather the tip of a much larger problem involving the bursting of the quadrillions-large global derivative bubble.

In Switzerland itself, the battle for bank regulation will become a central theme of the campaign leading to the parliamentary elections in Autumn. Although it will be difficult to tilt the balance of power in the Council of States, which had already voted down in 2014 the Glass-Steagall legislation adoted by the National Council, popular pressure could bring about a shift in policy even among members of the parties (Liberals and the Center) which are now opposed to bank separation.

The founder of the Swiss People’s Pary (SPP) Christoph Blocher has announced a popular initiative for a referendum to force through bank regulation, regardless of parliamentary votes. He told the April 12 Tagesanzeiger that “all systemically relevant banks must be reorganized in such a way that they can fail, without pulling down the national economy in Switzerland or abroad”.

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