MNI BRIEF: SVB/CS Show Need For FinStab Rule Changes - Knot

Basel III banking standards must be fully and consistently implemented “with minimal transitional arrangements or exceptions,” if recent financial system turmoil is not to be repeated, Financial Stability Board chair Klaas Knot said in a speech Thursday in which he also queried the behaviour of Swiss supervisors over their handling of the UBS/CS takeover.

"Credit Suisse did not fail, but was sold to UBS," Knot said. "One interesting question to ask here is this: why did FINMA, the Swiss supervisor, use a market - and not a resolution solution - to enable this sale?" (see MNI INTERVIEW: Swiss Should Explain Why Emergency Plan Ignored).

Regulators should consider lowering the threshold above which banks are considered systemically important, he said, while recalibrating Liquidity Coverage Ratios may be needed in light of the speed at which runs on bank deposits can happen in the digital age.

Current assumptions about customer behaviour and deposit duration may need to be more conservative enough, he said, while regulators should also look at whether unrealised losses need to be better reflected in the capitalisation of banks.