ZURICH (Reuters) - Slowing deposit withdrawals and better preparation of collateral will be crucial in handling future bank crises, said SNB vice chairman Martin Schlegel, after the biggest-ever cash injection into a bank was needed to engineer the rescue of Credit Suisse (SIX:CSGN).
Reuters reported last week that Swiss authorities, including the central Swiss National Bank (SNB), and lenders, are discussing ways to prevent bank runs by, for example, staggering the withdrawal of funds over a period of time and imposing fees on exits.
The SNB provided nearly 168 billion Swiss francs ($186.58 billion)in emergency funds to keep Credit Suisse afloat after the bank suffered massive cash outflows from rattled customers in March.
"It was the largest amount of liquidity assistance ever provided to a single bank anywhere in the world," Schlegel said at an event in Basel on Thursday.
But the bank, although solvent, was suffering from not just a temporary liquidity shortfall but also a fundamental loss of confidence, he said.
"Liquidity assistance alone would not have resolved the
crisis," he said, adding that other measures like the eventual state-brokered takeover by rival Swiss bank UBS were needed.
Schlegel highlighted other problems related to the crisis, including Credit Suisse not having enough collateral - bonds, equities and mortgages - ready to offer the SNB as security for the liquidity provided.
This limited the level of cash that could be offered via the Emergency Liquidity Assistance scheme (ELA), the SNB's usual tool as lender of last resort.
Additional money was provided for Credit Suisse via the Emergency Liquidity Assistance (ELA+), which provided cash secured only by preferential rights if Credit Suisse went bankrupt rather than against collateral.
The Public Liquidity Backstop (PLB), which provided funds covered by a government guarantee, was also used.
In future, Schlegel said improved preparation of collateral was needed by banks to allow them to better access emergency funding through existing schemes.
It was also crucial to slow the speed that deposits could be withdrawn, by extending the maturity of deposits for example.
"The bank and the authorities would thus gain valuable time to manage a crisis," he said.
Finally, the PLB should be used in future if the conventional ELA scheme was unable to cover the requirements of the bank, not ELA+, Schlegel said.
"ELA+ was necessary in the specific case of Credit Suisse, but it is not a model for managing future crises," Schlegel said.
($1 = 0.9004 Swiss francs)