TOO MANY LAWYERS AND NOT ENOUGH ECONOMISTS IN BERN.

Banks failing: Lessons learnt from Credit Sussie collapse. Part 2.

WRITTEN BY

Two bailouts in just 15 years

UBS in 2008 and now Credit Sussie.

"“Never again” was the mantra and the goal was to bring Swiss laws in line with other frameworks (namely the U.S. and the EU) and to follow international financial recommendations (i.e., the Basel accords). The Swiss regulator sought to shore up the stability of the system and bring it in line with international capital market standards, in hopes of bolstering the attractiveness of the Swiss financial marketplace."

The bank takeover and its consequences

How did FINMA orchestrate UBS’ absorption of Credit Suisse? FINMA decided to write off Tier 1 capital, tout simplement. This financial instrument was created by the international regulatory community after the 2008 financial meltdown to guarantee banks would have access to capital in case of distress.

The idea is quite simple: Tier 1 works as a bond, but if and when the bank needs capital, they get converted into shares. This conversion carries extra risk that is compensated by a risk premium. The market expected Tier 1 bonds (dubbed “CoCos” for ‘contingent convertible bonds’) to be—in one way or another—converted into stock or compensated in some other way. Nein! FINMA decided to write the bonds off instead, with two lasting repercussions.

First, the decision might sound the death knell for CoCos (or Tier 1) as an asset class. Who’s going to trust them now? Conventional wisdom says that investing in shares of stock is riskier than holding bonds. But FINMA just unilaterally decided to wipe out $100 billion in bondholder wealth. So a tenet of investing wisdom has been turned on its head.

Second, the Swiss authority has put national interests ahead of international credibility. Finance has another truism: “Banks are international in life, but national in death”. FINMA has sent a scary message to investors, which may cut the legs out of a market that has proven to be efficient in preventing bank failures. The decision, to its credit, seems to have halted (or at least slowed) the spread of bank failures that ignited in the United States with the collapse of Silicon Valley Bank. In a recent speech, President Biden’s response was unequivocal: “Investors in the banks will not be protected. They knowingly took a risk, and when the risk didn’t pay off, investors lose their money. That’s how capitalism works.”

"So FINMA has an army of fantastic lawyers to explain their way out of trouble. But what are economists saying about the deal? Is it good for the Swiss economy? Economists could provide a better understanding of the financial engineering, how markets operate and the dynamic behind it, which would help to predict and anticipate events in the future. Maybe there are too many lawyers and not enough economists in Bern. While law and economics is a well-established discipline in the U.S. and other countries, Switzerland seems to be clinging to an antiquated legal interpretation of events."

SOURCE:

https://hospitalityinsights.ehl.edu/banks-failing-lessons-learnt-credit-suisse-collapse-part-2

Comments

Return to the Killing Fields: When Arab Silence Becomes Complicity

In March 2025 , a flicker of hope broke through Gaza’s smoke-choked skies . Seventeen Palestinian children— each a living testimony to horror —were evacuated from the rubble of their homes and transported to Jordan for medical care. Some arrived with legs blown off at the thigh , tiny bodies bandaged like mummies. One boy, no older than ten , had both arms amputated and his face marked by deep burns —his eyes wide with trauma , silently screaming for comfort . A girl, barely breathing , had shrapnel embedded near her spine and could only speak in whispers —if at all. They came on stretchers , barely conscious , wrapped not in blankets but in sorrow . Their mothers were left behind, many buried under collapsed buildings or lost in the chaos of airstrikes. These children were not just patients— they were war’s rawest wounds, symbols of a people being systematically erased. And then, the unthinkable happened. These same children —these shattered, fragile souls—have now be...

She Stitched Wounds With Empty Hands—And Lost All Nine of Her Children

In Gaza, where the sun rises over ash and broken concrete, where lullabies are drowned by the sound of drones, lived a woman whose hands brought healing to children even as the world around her collapsed. Her name was Dr. Alaa — a pediatrician , a mother , a lifeline in the middle of hell. And she has become a symbol of both the highest form of love and the deepest human suffering. Nine children. All hers. All dead. Killed in a single Israeli airstrike. Not soldiers . Not fighters . Just children — tucked beneath blankets, seeking safety that never came. She was saving children in the hospital when her entire world was bombed out of existence. “ Mama, when will this end?” Her youngest had asked her this just days before the strike . He was five . He used to draw little suns on the wall with crayons , yellow and smiling — a child who believed light could still live here. One of the child of Dr. Alaa. Dr. Alaa hadn’t answered. Because she didn’t know. She hadn’t...

When Two Lives Matter More Than Seventy – A Night of Massacres in Gaza

When Two Lives Matter More Than Seventy On the same night that the world’s media was awash with breaking news about the tragic killing of two foreign diplomats in Washington D.C. by an American citizen—a horrific incident that drew immediate outrage, blanket media coverage, and solemn condemnations from every major capital— something else happened . In Gaza, 70 Palestinians were killed . Seventy human beings. Mothers, fathers, babies in their mother’s arms, and children huddled in fear inside a school they believed would protect them. The Fahmi al-Jarjawi School in Gaza’s Al-Daraj neighborhood was struck by Israeli warplanes. At least 36 displaced people were massacred , their bodies pulled from under the rubble, their lives extinguished without a moment’s pause. And yet, as the world grieves two diplomats, it forgets seventy Palestinians in a single night. Mainstream outlets offered wall-to-wall coverage of the Washington incident: live updates, expert panels, somber editorials....

Trump’s Gaza Plan and the Arab Autocrats: Displacement, Deals, and Betrayal

The Trump administration’s reported plan to forcibly relocate up to 1 million Palestinians from Gaza to Libya or Syria is more than a policy proposal—it is a geopolitical earthquake. It signals a dangerous shift toward normalizing permanent ethnic displacement under the guise of reconstruction. 1. What Is Trump’s Gaza “Solution”? Mass Deportation : Trump argues that Gaza is no longer livable and suggests relocating its population permanently—starting with Libya and possibly post-Assad Syria. Bribing the Host : Libya would receive access to billions in frozen funds in exchange for hosting Palestinians. Buying Consent : Trump suggests offering Palestinians housing and stipends to “incentivize” their exile. Fantasy Development : He wants to rebuild Gaza as the “Riviera of the Middle East”—without its native population. This plan, if implemented, would be a modern-day Nakba , violating international law and the principle of the right to return. 2. Why Are Arab Autocracies Qu...

Shot While Starving: Gaza’s Desperate March Toward Death.

"A Famine By Design: The Engineered Starvation and Killing Fields of Gaza" “It was like a battlefield full of blood and injured — everyone was lying on the ground, everyone screaming and everyone shouting.” — Jamal Azzam, nurse, Red Cross Hospital in Rafah On Tuesday morning, Israeli soldiers opened fire near a food distribution site in Rafah, southern Gaza, killing at least 27 Palestinians. It was the second such massacre in just three days . Only two days prior, 23 more were gunned down at the same location — a place that should have offered hope , not horror . The victims? Not militants . Not armed men. But starving civilians , many of them walking miles in the dark hoping to secure a single box of food . Their only crime was approaching aid, too hungry to wait. This is not war. This is calculated cruelty . 🔻 A System Designed to Fail — and to Kill The killings are the latest bloodshed under a new, deeply controversial food distribution system , jointly ...

Ainnbeen

Search This Blog