The Swiss National Bank is calling on authorities to draw on the "crucial" lessons learned from the Credit Suisse rescue to review banking regulations.
"The experience with Credit Suisse shows the need for a review of the Too-Big-To-Fail framework in order to facilitate early intervention," the SNB said in its 2023 financial stability report on Thursday (22 June).
The central bank said measures need to be implemented to "strengthen banks' resilience" to prevent a loss of confidence wherever possible, and ensure a "broad range of effective options to stabilise, recover or wind down a systemically important bank in the event of a crisis".
In the report, the SNB, which is responsible for overseeing financial stability in Switzerland alongside the market regulator FINMA, warned that dependence on existing regulatory capital and liquidity rules may even have contributed to Credit Suisse's woes.
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"The experience with Credit Suisse has shown that in a period of stress, regulatory metrics are relatively narrow and may delay corrective action," it said.
The SNB pointed to three key observations from the crisis, noting that compliance with capital requirements is necessary but not sufficient to ensure confidence in a bank, while AT1 bonds, the capital instruments designed to absorb early losses, were not fit for purpose.
"AT1 capital instruments absorbed losses only as the point of non-viability was imminent and state intervention became necessary," it said.
According to the central bank, the volume and rate of deposit withdrawals at Credit Suisse as a result of the crisis of confidence were unprecedented and more severe than anticipated under the liquidity requirements.
"The bank's liquidity buffers and the collateral prepared for central bank facilities were not sufficient to cover the massive liquidity outflows and the higher prepositioning requirements," the central bank added.
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The SNB has proposed requiring banks to hold aside a minimum amount of assets that can be pledged for central banks, which would enable banks to obtain emergency liquidity in the event of a wave of client withdrawals.
UBS formalised its takeover of Credit Suisse on 12 June, which was engineered by Swiss authorities in March. The merger has created a bank with a balance sheet of $1.6trn and 120,000 employees worldwide.
The SNB said it was not yet able to judge how resilient the newly merged bank would be, as the currently available data are not sufficient for "a comprehensive assessment of the combined bank's resilience in such a forward-looking analysis".
