Swiss central bank warns of'very big' bank

The marriage of UBS and Credit Suisse was hastily arranged to prevent a global financial meltdown but the size of the resulting megabank could cause domestic problems in Switzerland, the central bank said on Thursday. The Swiss National Bank, which played matchmaker in Sunday's takeover of Credit Suisse, said that the formation of a giant bank in Switzerland would create competition issues that need to be addressed carefully.

UBS was already the biggest bank in the country and will become even larger after swallowing up the second-most important bank in the wealthy Alpine nation, where a vibrant banking scene is central to Swiss culture.

With Credit Suisse shares in freefall last week, the Swiss government, the SNB central bank and the FINMA financial regulators strongarmed UBS into buying its stricken rival before the markets reopened on Monday.

SNB chairman Thomas Jordan said this avoided triggering a wider banking crisis around the world, but he accepted that domestic banking choice in Switzerland had taken a hit.

Jordan told reporters at the SNB headquarters in Zurich that UBS will be a very big bank and that competition issues will be relevant.

There will be enough competition for banking services in Switzerland in the future. I think this is in the interests of everyone - including UBS. He said that FINMA and the Swiss finance ministry would have to look at dealing with the situation.

At this moment, I think the focus needs to be on ensuring that we can maintain financial stability under all circumstances. Behind UBS and Credit Suisse in Switzerland, Raiffeisen and PostFinance rank as domestic systemically important banks, along with the cantonal banks of Zurich and Vaud, which have limited reach beyond those regions.

Jordan said that Switzerland's emblematic banking industry was in good health.

He said that the Swiss banking system is very resilient and robust.

Credit Suisse and UBS were among the 30 banks that were considered too big to fail and therefore considered Global Systemically Important Banks.

Such banks must meet stringent requirements, including the level of capital they must set aside to weather a crisis, in order to be ranked according to their importance to the global financial system.

The US bank JPMorgan Chase is the only bank that has the strictest rules, but UBS is likely to jump up in the rankings.

The Swiss authorities will have to learn to manage a larger bank that presents greater systemic risks.

The collapse of two tech-lending US banks sparked fears of an international contagion, which led to the collapse of Credit Suisse.

Analysts considered whether Credit Suisse could have sold to a foreign bank, broken up or wound down in an orderly bankruptcy.

Jordan said that we were in an extremely fragile environment in which we had a banking crisis in the United States and enormous nervousness in financial markets in general.

He said that any outcome other than the UBS takeover would not have stabilised the situation.

It would have created enormous uncertainty and put the Swiss financial system in jeopardy - but not only Switzerland. It could be the start of a bigger global financial crisis. Swissmem, the national association representing the engineering industry, expressed concern about the risks of having only one major Swiss bank with the skillset for exports, and the consequences on costs without an alternative to UBS.

Some are worried about the choice of mortgages, with Credit Suisse and UBS both players in retail banking.

The Competition Commission, however, didn't have a say in the takeover. It will only give an advisory opinion to FINMA, according to a statement by the company to the AFP on Thursday.