By Stefania Spezzati
LONDON (Reuters) - Switzerland called on Wednesday for changes to global measures to prevent liquidity crunches which were introduced after the global financial crisis, to make bank runs less calamitous.
A year after the collapse of Credit Suisse (SIX:CSGN), which was bought by UBS in an emergency rescue, Swiss officials and regulators are examining how to change liquidity rules to make banking deposits more stable and avoid bank runs.
The Swiss government said in a report on how to regulate banks deemed "too big to fail" (TBTF) that liquidity requirements should be addressed internationally.
It said the liquidity coverage ratio (LCR), a key measure to gauge a bank's ability to meet its cash demands, should be reviewed and banks should be allowed to fall below the current minimum that regulators globally have agreed.
While regulators in Europe and the U.S. are looking into whether LCRs are fit for purpose, the Swiss call gives the most detailed insight into what supervisors are thinking since the collapse of Credit Suisse in March 2023.
Switzerland's then second-largest bank saw billions of Swiss francs in deposits exit in a matter of days, burning through what had appeared to be comfortable cash buffers.
In Europe, banks must hold a minimum LCR of 100%, even when depositors and creditors are withdrawing cash, but the Swiss government said a "flexible use" in which the ratio falls below this level should be possible in such a crisis.
"The Credit Suisse crisis has shown that it was unrealistic for the LCR to fall below 100% due to the associated stigma and that as a result, the buffer function of this ratio could not come into effect," it said in its report, the recommendations of which are subject to parliamentary approval and could change.
The requirement of 100% should be "divided into a buffer portion that is explicitly possible to fall below and a minimum requirement that must be met at all times," it added.
Credit Suisse believed that its LCR should not fall below 100% because this could have signalled to the market it was facing serious liquidity issues, the report added.
European regulators are also debating whether to shorten the period of acute stress - from 30 days to 5 or 10 days - to measure the buffers banks need over shorter time frames, because bank runs can happen faster today, Reuters reported in March.
Liquidity rule changes are also being debated in the U.S.
DEPOSITS
Switzerland's government also said lenders could move a greater portion of client deposits into longer-term saving products with higher yields, to help make deposits more stable.
Credit Suisse held a large portion of sight and short notice period deposits which enabled rapid withdrawals, it said.
Banks could be encouraged to hike interest rates and "motivate customers to make long-term savings or term deposits rather than sight deposits", the report said. To facilitate this, lenders' LCRs could take into consideration the portion of their funding that is short term.
Reuters reported in November that rewarding clients who tie up their savings for longer with higher rates was an option Swiss officials had debated as they drew up new rules.