EU’s top lenders would need central bank aid in crisis: SRB

BLOOMBERG

The failure of Credit Suisse Group AG shows that Europe’s top lenders would still need liquidity assistance from central banks if they were to collapse, according a top regulator.
That case made clear that the needs of a so-called global systemically important bank in crisis would outstrip the bloc’s bank failure fund, as well as a planned additional facility, the Single Resolution Board (SRB) told national officials in a closed-door presentation obtained by Bloomberg.
Regulators around the world have sought to put an end to taxpayer support for failed lenders after the 2008 financial crisis. The fact that Swiss citizens and the country’s central bank had to provide support for UBS Group AG’s emergency takeover of Credit Suisse was a painful reminder that the top banks are still too big to fail.
The Swiss National Bank agreed to provide additional liquidity lines of 200 billion Swiss francs ($223 billion) in total as part of the Credit Suisse deal. UBS Chief Executive Officer Sergio Ermotti said that losses for the Swiss government or SNB are “exceptionally unlikely.”
The neighbouring European Union will finish building up its Single Resolution Fund by the end of this year and is working to double the size of that facility with a so-called backstop.
The SRF is based on contributions from banks and stood at €66 billion ($71.3 billion) in July 2022. It will ultimately amount to at least 1% of covered deposits in the 21 countries that are part of the so-called banking union.
“The Swiss case confirmed that the needs of a G-SIB could go beyond the SRF and its backstop,” according to the presentation by Sebastiano Laviola, a board member at the SRB. “Involvement of the Eurosystem is still needed.”
The Eurosystem comprises the European Central Bank and the national central banks of the countries that have adopted the euro. The EU counts eight G-SIBs: Banco Santander SA, BNP Paribas SA, Credit Agricole Group, Deutsche Bank AG, Groupe BPCE, ING Groep NV, Societe Generale SA and UniCredit SpA.
The SRB is Europe’s authority for handling failed banks and is a key player in keeping the region’s financial system is prepared for crises.
The example of Credit Suisse also shows that having liquidity facilities in place that are communicated to investors “reduces risks of contagion and supports resolution strategies,” according to Laviola’s presentation.
There was limited impact on European banks from the events at Credit Suisse and the recent collapse of several US banks, according to the presentation. That supports the validity of EU banking rules, but should not be a reason for complacency, Laviola said.