Banking Archives

Will the UK’s Inflation Figures Strengthen the Bank of England’s Hawkish Bias?

Written by IntaCapital Swiss on May 28, 2025. Posted in News & Reports. Leave a Comment

The latest data released by the ONS (Office for National Statistics), shows the United Kingdom’s inflation rate, the CPI (Consumer Price Index), jumped to 3.5% from 2.6% in April of this year, driven mainly by increases in water, energy and other price increases. Service inflation was seen accelerating from 4.7% to 5.4% and is an area the Bank of England watches closely for signs of underlying price pressure, and Bank officials had expected this figure to be 5%. Elsewhere Core Inflation (does not include food and energy) climbed to 3.8% which is the highest it has been since April 2024. Earlier this month, the Bank of England’s MPC (Monetary Policy Meeting) voted on yet another rate cut where two members voted to hold rate cuts, and the above figures bear out their cautiousness.

The Bank of England’s target inflation figure is 2%, and the current rate of inflation is well above that target and furthermore, the Bank of England expected this figure to rise and peak at 3.7% in September of this year. Other data shows consumer prices rising by 1.2%, the biggest rise for 24 months. Consumers in April were hit with a number of increases such as volatile air fares (up 16.2% year on year), water bills, local authority taxes, train fares and an across-the-board basic cost increase, which added to a pretty damning April for the government. However, analysts have noted that the Easter holidays were probably responsible for the jump in airfares (biggest month-on-month jump for April on record) and expect this figure to diminish before the summer holidays begin.

Experts suggest the financial markets are in favour of an end of year interest rate of 4% for the first time since the end of March/early April. This sentiment translates into one more rate cut this year suggesting that the Bank of England’s MPC will slam the door shut on an interest rate cut at its next interest rate meeting on Thursday 19th June 2025, with traders cutting an August interest rate cut from 60% to 40%. Markets also remember comments from the Bank of England’s Chief economist, Hugh Pill, who voiced in a hawkish speech that he feared interest rates were not high enough to keep the lid on inflation, and analysts suggest that it would not take too much for the swing voters on the MPC to move into the hawk’s camp especially after what the Consumer Price Index had recently shown.

Indeed, Mr Pill voted against a rate cut of ¼ of 1% earlier in May where he also said, “In my view, that withdrawal of policy restrictions has been running a little too fast of late, given the progress achieved thus far with returning inflation to target on a lasting basis. I remain concerned about upside risks to the achievement of the inflation target”. We will wait on the MPC’s meeting in June but the likelihood according to experts is a rate hold, plus we will also wait and see if Donald Trump’s economic policies impact further the global economy with any fall-out influencing decisions taken by bank officials. Elsewhere in April, it has been revealed that government borrowing for the month was £10 Billion, with data confirming this figure to be a new record. All in all, not the best 30 days with newspapers dubbing the month as “Awful April”.

Moody’s Downgrades the United States’ Sovereign Credit Rating

Written by IntaCapital Swiss on May 21, 2025. Posted in News & Reports. Leave a Comment

On Friday May 16th, 2025, the credit rating agency Moody’s downgraded the Unites States’ sovereign credit rating from Aaa (equivalent to AAA at Standard & Poor’s and Fitch) by one notch to Aa1 due to growing concerns over the nation’s USD 36 Trillion debt pile. Moody’s is the last of the three most important and recognisable rating agencies to downgrade the sovereign credit rating of the United States, with Fitch downgrading in 2023 and Standard and Poor’s downgrading in 2011. The United States has held a perfect credit rating from Moody’s since 1917, however the rating agency back in November when 2023 advised it might lower the U.S. credit rating when it changed its outlook from stable to negative.

The reaction from the White House was predictable, with spokesman Kush Desai saying, “If Moody’s had any credibility, they would not have stayed silent as the fiscal disaster of the past four years unfolded.” In another statement the White House advised that the administration was focused on fixing Biden’s mess. The White House communications director Steven Cheung also laid into Moody’s singling out their chief, Mark Zandi, who he said was a political opponent of President Trump, and is a Clinton donor and advisor to Obama. He went on to say, “nobody takes his analysis seriously and he has been proven wrong time and time again”.

Moody’s pointed out that in 2024, the government spending was higher than receipts by circa USD 1.8 Trillion, being the fifth year in a row where fiscal deficits have been above USD 1 Trillion. Debt interest has been growing year on year and eating into sizeable chunks of government revenue, with Moody’s pointing out that federal interest payments in 2021 absorbed 9% of revenue in 2021, 18% in 2024, and predict circa 30% by 2035. The GAO (Government Accountability Office), which is seen as an investigation arm of Congress has called the current situation unsustainable and went on to say that unless there is a change of policy debt held by the public will be double the size of the national economy by 2047.

After the announcement on Friday 16th, markets were unnerved on the following Monday morning, with stock markets recovering by the end of the day with experts confirming that markets had shrugged off the news, but some were advising that investors should be wary of complacency. However, some analysts advise the downgrade is a warning sign and may be the catalyst for profit taking after a huge run in the past month for equities. At the end of the day, United States Treasury Bonds are currently viewed by global investors as the safest investment in the world, and a downgrade by Moody’s is unlikely to stifle appetite for treasuries.

For most money managers and other global investors and market participants experts advise that the downgrade was probably seen coming for some time and lands in a market already wary of risks from tariffs and fiscal dysfunction. However, currently President Trump is pushing the Republican controlled Congress to pass a bill extending the 2017 tax cuts, a move some analysts predict will add many trillions to an already highly inflated government debt. However, hardline Republicans blocked the bill denuding deeper spending cuts. There was volatility in US Treasuries on Monday after the Moody’s announcement with 30-year treasuries breaking through the symbolic barrier of 5% (first time since October 2023) but slipped back to 4.937% by close of business. Experts suggest that the bond market had already priced in risk premium for government economic policy already in disarray, meaning Monday’s upward move in yields was just a knee-jerk reaction.

Despite the Recent Rebound, Will Investors in the Long-Term Continue to Dump Dollar Assets?

Written by IntaCapital Swiss on May 14, 2025. Posted in News & Reports. Leave a Comment

Although recent losses in US stocks have almost been wiped out, market experts believe that institutions such as pension funds and institutional money managers could in the long-term cut back on their massive exposure to US Dollar investments. Some investment bankers close to the action of certain money managers with trillions of dollars in U.S. Dollar asset exposure have started to cut back on these positions, mainly due to the fall out on the tariff war, flip flopping on policy, and Donald Trump’s continued attacks on the Chairman of the Federal Reserve, Jerome Powell.

Expert analysts advise that logically Europe is the current destination for the flight of capital from the United States, due to growth in the European economy being led by German spending in the defence sector and mixture of relatively cheap equity markets. Recently released data shows that in March 2025, the largest cut in history to U.S. equity allocations* with the shift out of the economy of the United States and into Europe was the sharpest since 1999. Further data released showed that in April 2025, outflows from ETFs (Exchange Traded Funds) domiciled in Europe that invest in U.S. debt and equities reached Euros 2.5 Billion, a level not reached since 2023.

*US equity allocation – refers to the portion of an investment portfolio dedicated to stocks of companies listed on U.S. stock exchanges. It’s a key component of overall asset allocation, which involves distributing investments across different asset classes like stocks, bonds, and real estate.

Although there have been recent gains by the US Dollar, overall, it is down 7% in 2025, with some institutions reporting spot transactions where institutional investors have sold the US Dollar and bought Euros on a sustained basis. One highly qualified and senior macro strategist in Europe announced that “If European pension funds were to reduce their allocations to 2015 levels, that would be equivalent to selling Euros 300 Billion in U.S. denominated assets. Some European pension funds have already started to trim their U.S. holdings position with Danish pension funds in Q1 2025 selling U.S. equities for the first time since 2023 and in the quarter Finland’s Veritas Pension Insurance Co reduced their exposure to U.S. equities.

Investors, analysts, economists etc, all talk about the cyclical effects in the various financial and commodity markets. What goes up must come down and vice versa. Remember the Global Financial Crisis of 2007-9 where liquidity completely dried up, banks were not lending to each other, investment bank(s) going bankrupt, bail outs of some of the largest financial institutions? Several years later everything it seemed was back to normal with the longest run of low interest rates seen for decades.

The point is whilst the United States is seeing massive outflows of capital in a reversal of the long-term trend where inflows were the order of the day where capital was attracted liquidity, market performance and economic growth. Some analysts advise that the current trend will only go so far given the liquidity and depth of the U.S. stock market and the circa USD 30 Trillion US Government Bond/Treasury market. Analysts report that many investors are sitting on the side lines wary of betting against the economy of the United States and its prospects for long-term growth.

United States Federal Reserve Holds Interest Rates

Written by IntaCapital Swiss on May 7, 2025. Posted in News & Reports, Uncategorized. Leave a Comment

In the weeks leading up to today’s interest rate announcement by the FOMC (Federal Reserve Open Market Committee), President Donald Trump has viciously attacked the Chairman of the Federal Reserve, Jerome Powell. In one damning statement the President said on his social media post to “cut rates pre-emptively to help boost the economy,” saying Powell had been “consistently too slow to respond to economic developments”.

President Trump also wrote “There can be no slowing of the economy unless Mr Too Late, a major loser, lowers interest rates now”. This criticism (he has also threatened to replace Chairman Powell) came after Powell’s warning that Trump’s import taxes were likely to drive up prices and slow the economy. Below, the vote on interest rates by the FOMC reflects Chairman Powell’s and the Federal Reserve’s commitment to that warning.

Today the FOMC voted unanimously to hold its key benchmark interest rate at 4.25% – 4.50% where it has remained since December 2024. Confirming the decision, Federal Reserve Chairman Jerome Powell said that officials were not in a hurry to adjust interest rates adding that tariffs could lead to higher inflation and unemployment. Chairman Powell went on to say, “If the large increase in tariffs are sustained, they are likely to generate a rise in inflation, a slowdown in economic growth and an increase in unemployment”.

Experts suggest that the unpredictability of President Trump and his back and forth on tariffs makes it very difficult for the Federal Reserve to predict the future of the economy. However, the statements coming out of the Federal Reserve confirmed that currently the economy is resilient with improving job gains and the economy growing at a solid pace. At the same time, analysts suggest that the Federal Reserve is in a holding pattern as it waits for uncertainty to clear.

Several analysts and experts have said that the Federal Reserve’s monetary policy direction depends on how the risks develop on inflation or jobs, or in a more difficult scenario whether unemployment and inflation risks increase together. If both increase together, the Federal Reserve will have to choose which direction to take monetary policy as a weaker job market calls for rate cuts and higher inflation would call for a tightening of monetary policy.

In his post-statement comments Chairman Powell also added that inflation ignited by tariffs could be short-lived or long-lasting depending on how high tariffs go. Just before the FOMC released their interest rate statement President Trump indicated that he would not back down on the current duties of 145% imposed upon China. The wait and see element of Federal Reserve policy is here to stay for a while with some financial analysts suggesting a cut of 0.25% in interest rates will come in July 2025.

Swiss National Bank Cuts their Benchmark Interest Rate

Written by IntaCapital Swiss on March 21, 2025. Posted in News & Reports. Leave a Comment

On Thursday, 20th March 2025, officials of the SNB (Swiss National Bank) cut their benchmark interest rate by 25 basis points to 0.25%, the lowest rate since September 2022. In the current cycle of quantitative easing, this is the fifth time the SNB has cut rates and President Martin Schlegel signalled that officials do not expect any more easing for the time being. The President went on to say that “This rate has an expansionary impact; in that sense the probability of additional policy easing is naturally lower”. Experts advise that pricing in the swaps market indicates no more rate cuts by the SNB in 2025.

The move to cut rates on Thursday follows a reduction in rates by 50 basis points in December 2024, a move that caught financial markets by surprise. Analysts suggest that this move completes their foreign-exchange policy which i.) is in anticipation of future market volatility and ii.) to deter inflows into the Swiss Franc. As a result of global trade tensions due to President Trump’s tariffs and other geopolitical and economic policies, the Swiss Franc is regarded as a safe haven for investors guarding against global instability.

Data released during the week prior to Thursday’s rate cut shows that in the last quarter of 2024, the SNB basically removed themselves from the foreign exchange markets, confirming one whole year without any considerable interventions. Indeed, once Trump won the presidential election on 5th November 2024, the Swiss Franc gained against the Euro, but those gains have since been erased with the Franc weakening against the Euro. The President of SNB said on Thursday, “Switzerland is not a currency manipulator; past interventions were necessary to maintain price stability”. This statement analysts suggest is to remind Trump that during his first term, Switzerland was branded a currency manipulator.

Experts in this arena suggest that the decision to cut interest rates is to contain market pressure, and to stop the Swiss Franc from strengthening thus lowering import costs which would impact negatively on inflation. SNB President Schlegel said, “the outlook for inflation is currently very uncertain, with risks predominantly on the downside” SNB officials have lifted their inflation forecast from 0.30% to 0.40% for 2025 and 0.80% in 2026 and 2027. SNB also confirmed that during the last quarter, Switzerland’s economy enjoyed its strongest expansion and, as a result, still expects the economy to grow between 1.005 to 1.50 % in 2025. Once again Donald Trump’s tariffs and other policies both domestic and international seem to heavily weigh on policymakers’ decisions at central banks.

Federal Reserve Holds Interest Rates Steady

Written by IntaCapital Swiss on March 20, 2025. Posted in News & Reports. Leave a Comment

On Wednesday, 19th March 2025, the Federal Reserve announced they were holding their benchmark interest rates steady at 4.25% – 4.50%. The FOMC (Federal Open Market Committee) voted 8 – 1 in favour of keeping interest rates steady, with the dissenting voice belonging to Christopher J. Waller, who has been a member of the Board of Governors since December 18, 2020. It appears that members are concerned that inflation could remain stubbornly high whilst at the same time the economy could be slowing.

The Chairman of the Federal Reserve, Jerome Powell, confirmed that the significant policy changes attributed to President Trump were the main reason for the Fed’s high degree of uncertainty in regard to the U.S. economy. However, he went on to say that Federal Reserve officials will certainly wait for greater clarity on the impact of President Trump’s policies, before making any definite changes to borrowing costs.

Policymakers still suggest that further interest rate cuts will be necessary, with financial markets pricing in two further cuts, totalling 50 basis points in 2025 and a number of traders suggesting that there is a 62.1% of a further interest rate cut in June this year. Officials further marked down their outlook for inflation and growth and see the economy accelerating by just 1.7% this year, down from 2.1% as advised by their last projection in December 2024.

On the inflation front, Fed policymakers advise that inflation has remained elevated since Donald Trump was elevated to the Presidency and have raised their average estimate for core inflation (does not include food and energy prices) for 2.5% to 2.8% for year end 2025.

They also increased their estimate for the end of 2025 from 4.3% to 4.4%, whilst confirming that consumer confidence had gone south, resulting in softening spending figures.

It is expected that the Federal Reserve’s interest rate decision will incur the wrath of President Trump, who has repeatedly suggested that he should have a role in interest rate decisions. Indeed, he announced to the world in January 2025, at the World Economic Forum in Davos, “With oil prices going down, I’ll demand interest rates drop immediately, and likewise they should be dropping all over the world”.

Experts suggest that in the coming months, President Trump will certainly try and get a firm grip on the Federal Reserve as he will wish to exert his influence on interest rate decisions. Indeed since the inauguration of President Trump on January 20th 2025, the Federal Reserve has held two meetings where the decision was to hold interest rates steady, with the first meeting in January bringing an end to a run of three consecutive interest rate cuts.

In the run up to the presidential election on November 5th 2024, Trump announced he would not fire Jerome Powell, but with two interest rate holds two months into the Presidency we will have to wait and see. However, a President only has the power to appoint a Fed chairman, he cannot fire the chairman unless he has “cause” as per the Federal Reserve Act. In other words, President Trump cannot fire Chairman Powell over policy disagreements, but Trump being Trump he may find a way to get what he wants.

Investors Pile Into Ultra-Short Term Bonds ETFs

Written by IntaCapital Swiss on March 12, 2025. Posted in News & Reports. Leave a Comment

Currently, President Trump’s economic policies are fanning the flames of concerns regarding a recession and a sell-off in the stock markets, and investors are pumping money into Ultra-Short Term Bonds ETFs*. Led by products such as the iShares 0 – 3 Month Treasury ETF, this sector has received in excess of USD 16 Billion since January 1st 2025 with iShares 0-3 Month Treasury accounting for circa USD 7 Billion. Last week March 3rd – March 8th 2025, data reveals that the iShares ETF received USD 1.4 Billion recording the largest inflow of funds to date.

*Ultra-Short Term Bonds – These are bond funds that invest only in fixed income instruments with very short-term maturities. Such instruments will have maturities of less than one year and are usually defined as government or corporate bonds, CDs (Certificates of Deposits), commercial paper, and money market funds.

*Ultra-Short Term Bonds ETFs (Exchange Traded Funds) – These funds are designed for investors who are focused on reserving assets but would also like to earn income. Utilising short-term investment grade corporate, bonds, government bonds and money market instruments, these ETFs aim to best returns on cash and your typical money market funds without incurring substantially more risk.

Data provided by experts show that lay-offs in the US federal workforce, softening economic data and President Trump’s on-again, off-again tariff war on the allies and top trading partners of the United States has fuelled a sell-off in the stock market. Indeed, since election day of November 5th 2024, President Trump and the rest of the financial markets has seen all the gains since that day on the S&P 500 Index completely wiped out. Furthermore, economic models provided by a number of investment banks and other such luminaries, suggest that the risk of a recession in the US economy is on the up.

During times of volatility and turbulence in stock markets those ETFs with short-dated maturities tend to receive an accelerated amount of incoming funds. Data received shows that from 2013 during downturn months in the S&P 500, flows into the above-mentioned funds were circa USD 2.7 Billion, and during the up-turn months funds received were circa USD 440 Million.

Elsewhere in the week through March 5th 2025, Global Money Market Funds witnessed a huge inflow of funds, and data provided by LSEG Lipper* showed the amount received as USD 61.32 Billion, with a net inflow of USD 39.55 Billion the week before. Many commentators and experts attribute this inflow to President Trump escalating his trade war by imposing steeper tariffs on imports from China, Mexico, and Canada.

*LSEG Lipper – provides global independent fund performance data, in a precise granular fund classification system, and includes mutual funds, CEFS (Closed-End Funds), ETFs, hedge funds, domestic retirement funds, pension funds, and insurance products.

Experts have suggested that President Trump has put the strength of the economy on the backburner while he pursues his political goals and agendas. This could turn out to be a massive mistake as more and more analysts, experts, and economists, suggest that his somewhat outdated “America First” platform is knocking confidence and weighing on confidence. Indeed, an increasing number of economists had revised downwards their growth predictions with warnings that Trumpenomics and his trade wars are proving more damaging to the US economy than first anticipated.

Furthermore, the R word is beginning to be used more and more with many feeling that a recession could soon be appearing on the horizon. Furthermore, when asked that very question on Sunday 9th March 2025, President Trump declined to rule out the possibility that the US Economy could indeed fall into recession.

The European Central Bank Cuts Interest Rates March 2025

Written by IntaCapital Swiss on March 10, 2025. Posted in News & Reports. Leave a Comment

On Thursday 6^th March 2025 and for the sixth time since June 2024, the ECB (European Central Bank) cut interest rates by a ¼ of 1% (25 basis points) to 2.5%. The ECB’s Governing Council released a statement saying, “The disinflation process is well on track, inflation has continued to develop broadly as staff expected, and the latest projections closely align with the previous inflation outlook”. The vote by the governing council was unopposed except for Austria’s Robert Holzmann who abstained. The ECB now sees inflation averaging 2.3% in 2025, 1.9% in 2026, and 2.0% in 2027.

Experts suggest that the ECB’s thoughts on interest rates is not as clear cut as it was a few weeks ago as there is increased geopolitical uncertainty plus a large fiscal stimulus looming large on the horizon. As President Trump withdraws backing for Ukraine, the President of the European Union, Ursula von der Leyen, suggested that the funds needed to rearm Europe could easily reach as much as Euros 800 Billion. Experts suggest that such an outlay could well have implications for economic expansion, and inflation.

The President of the ECB noted that the risk to economic expansion was still leaning towards the downside. However, the President pointed out that increased defence spending should give the economy a lift after President Trump turned against Europe and Ukraine leaving the Europeans to drive forward their own defence and that of the Ukraine. The President also went on to say that the ECB would be even more data-dependent and said that they would pause quantitative easing should the data/numbers suggested that was needed in order to hit their inflation target of 2%.

At their next policy meeting in April, it would appear that bank officials are heading for a showdown over interest rate cuts and are preparing for some difficult negotiations. Interestingly, the doves on the governing council appear to see little reason to pause, whilst the hawks feel they should hold interest rates to study the implications of increased European defence spending and the on-going up-coming geopolitical risks.

Experts suggest the financial markets are also undecided with traders and investors feeling that the upcoming defence outlays will fan inflation and push economic expansion. One financial expert said that in the Euro bloc there is an expectation of higher growth rates and a slowdown in the disinflationary process. This will reduce the scope for further interest rate cuts at the next meeting of the ECB in April and the rhetoric of President Lagarde shows she is sitting on the fence as to whether or not there will in fact be an interest rate cut. There is also the spectre of tariffs from President Trump which undoubtedly clouds the thinking of officials.

Reserve Bank of India cuts Interest Rates for the First Time in Five Years

Written by IntaCapital Swiss on February 19, 2025. Posted in News & Reports. Leave a Comment

On Friday 7^th February 2025, the Central Bank of India, the RBI (Reserve Bank of India), for the first time in five years cut its key policy rate by 25 basis points to 6.25%. Officials advised that the decision was unanimous and that the interest rate cut was in response to a downturn in the highest populated country in the world, and to shore up economic growth. The bank further advised that it was going to be proactive with liquidity measures given the banking system has had negative liquidity for the last two months.

Experts on the Indian economy suggested that the effect of the interest rate cut will be felt mainly by new loans and on those floating rate loans that are linked to external benchmarks such as SMEs (small and medium enterprises) and in the housing sector. Elsewhere, analysts predict the interest rate cut will have a negative effect on NIMS (net interest margins being the difference between interest paid and interest earned), in the NBFI* (Nonbank Financial Institution) arena. It is suggested that NIMS will come under pressure in areas where there is direct competition with banks such as the commercial loans or near-prime urban housing/ affordable housing sectors.

*NBFI – A nonbank financial institution does not have a full banking licence and cannot accept deposits from the public. A NBFI is not regulated by the government and are therefore not subject to the same laws and regulations as banks.

The rate cut comes on the heels of an injection into the domestic banking system by the RBI of USD18 Billion in an effort to ease a cash shortage in the economy and the February 1^st, 2025, Union Budget where struggling middle classes received a tax cut of USD12 Billion. The governor of the RBI Sanjay Malhotra was quoted as saying “ the bank was keeping its policy stance neutral” with markets interpreting this statement as opening more pace for economic growth thereby signalling further rate cuts of 50 basis points to a full 1% in 2025.

Some economists predict that in Q4 2025 inflation will remain steady at 4.4% rising to 4.6% in Q1 2026, however it is estimated that from Q2 onwards inflationary pressures are expected to ease. This is the first rate cut by the RBI since the Covid-19 Pandemic crisis which is indicating a more dovish stance by the bank. This is possibly the main reason why Governor Malhotra was elected in December 2024 ousting his more hawkish predecessor Governor Shaktikanta Das, depriving him of a third term. Experts suggest that this was perhaps an intervention by Prime Minister Narendra Modi, who had decided the cost of borrowing had remained too high over a substantial period.

Sadly for the RBI, their current and future policies (like a number of countries around the world) may be somewhat stymied by the tariff policies of the US President Donald Trump. The Indian Rupee is trading close to record lows, there are record outflows by foreign investors, plus and further geopolitical and economic headwinds could see further complications for the Central Bank and government economic policy.

Those Arguing for Protection for UBS get the Thumbs Down from the Swiss Regulator

Written by IntaCapital Swiss on February 6, 2025. Posted in News & Reports. Leave a Comment

Following the collapse of Credit Suisse AG, Switzerland is currently undergoing a regulatory overhaul, and senior management of UBS (Union Bank of Switzerland AG) plus their lobbyists have been arguing that the bank should be given special treatment allowing the bank to increase its competitiveness on the global financial stage. Executives and lobbyists have been arguing against the likelihood of the Swiss Government raising the capital requirements for UBS, suggesting that this will hurt what they refer to as a “National Champion”.

FINMA (Swiss Financial Market Supervisory Authority), the financial watchdog and regulatory authority of Switzerland has basically given the thumbs down to any special treatment regarding the bank’s competitiveness against rivals in the global financial markets. The CEO of FINMA Stefan Walter was insistent when he said that in order to ensure the Swiss finance sector stays competitive, the best way is to strengthen reputation and stability via the medium of good oversight. He was quoted as saying “A direct mandate to competitiveness opens the door to conflicts of interest, political intervention or excessive lobbying by the supervised parties”. He went on to say, “the regulator should instead focus on the protection of creditors and the functioning of financial markets”.

It is the government’s plan that has brought the lobbyists and executives of UBS out in force which is to increase the capital requirements for UBS (currently Switzerland’s only global player) which may well result in calls for more capital in the region of USD 25 Billion. The CEO of UBS Sergio Ermotti has branded such a plan as “an extreme overreaction” that would effectively increase the costs of banking services and would subsequently damage competitiveness.

However, in May 2024 Stefan Walter said that UBS should provide a 100% backing for its foreign units which then and now aligned with the government’s plan to increase the capital requirements for UBS, a statement reiterated just recently. The reason for this statement is that in March 2023, when Credit Suisse AG failed, the problem was that the parent bank had such a low capital backing for foreign units they were less able to absorb losses. Today, pushing back against FINMA’s recommendations are Swiss business and banking lobbies who also have said that FINMA did not use its powers when Credit Suisse was in crisis.

As far as FINMA is concerned, CEO Walter said that FINMA currently lacks the powers that are currently available to other regulators saying that the Swiss supervisor can only curb or decline bankers’ bonuses if they have first received stabilising funds from the government. He went on to say that FINMA needs the ability to work independently and just as importantly without the pressure that currently comes from the political arena or from the institutions it supervises. FINMA has made its point, but now it is up to the Swiss parliament and the government which will decide the final outcome.

Tag: Banking