Swiss authorities, banks mull new rules to prevent bank runs

The talks, which have not been previously reported and are part of a broader review of the country's banking rules, are intended for the top Swiss banks and could target mainly their wealth clients, two of the sources said.

Among the measures being discussed is the option to stagger a greater portion of withdrawals over longer periods of time, one of the sources said. Imposing fees on exits is also an alternative being discussed, two of the sources said.

Rewarding clients who tie up their savings for longer with higher interest rates is being debated, one of the sources said.

Discussions are in the early stages, according to two sources. The Swiss National Bank and the Swiss Finance Ministry are part of the conversations with lenders, one source said.

A representative for the finance ministry said that the issue of bank runs is part of an overall evaluation of the too-big-to-fail regulatory framework in Switzerland. The Swiss government is due to publish a report in spring next year, he added.

The SNB said the review of too-big-to-fail rules, which focuses on so-called systemically important banks, is ongoing. The central bank declined to comment on ongoing work.

UBS declined to comment.

UBS shares were 1.8% lower as of 11:35am in Zurich, the biggest decliner in the Stoxx Europe 600 Financial Services Index.

Reuters could not determine which other banks were involved in the conversations with Swiss authorities.

In Switzerland, UBS, Raiffeisen Group, Zürcher Kantonalbank and PostFinance are deemed systemically important lenders as their failure could cause serious damage to the country’s economy and financial system.

A spokesperson for PostFinance said it is not involved in the discussions while a spokesperson for ZKB declined to comment. A representative for Raiffeisen did not have an immediate comment.

DEPOSIT RUNS

Earlier this year, some regional U.S. banks and Credit Suisse suffered massive deposit runs, causing some to fail and regulators to intervene to prevent a broader financial crisis.

Regulators worldwide have since been grappling with the risk of bank runs, which in the era of digital banking have accelerated in speed.

Financial regulators will need to make sure that banks retain adequate financial buffers as advances in technology increase the risk of bank runs, Bank of England executive director for markets, Andrew Hauser, said on Friday at a conference in London.

In the case of Credit Suisse, the Swiss lender suffered unprecedented outflows and came close to a disorderly wind-down in March. Wealth managers tend to have a greater concentration of deposits than some of the retail banking competitors, which emerged as a weakness for the lender.

In the last three months of 2022, the bank, at the time Switzerland's second-largest lender, was hit by 111 billion Swiss francs of outflows. Another 61 billion Swiss francs left in the first quarter, with the wealth unit which caters to affluent clients hit the hardest.

Its near-implosion prompted the SNB to step in with emergency funding and to facilitate its takeover by UBS, making the country's biggest bank even larger.

"The case of Credit Suisse has clearly shown that outflows of customer deposits can now be much faster and more extensive than assumed by the existing regulations," said Swiss National Bank Chairman Thomas Jordan at an event in Bern on Wednesday.

"The liquidity regulations must be geared to the new reality of potentially faster and larger outflows of deposits," he added.

While it’s early days, the measures under discussion in Switzerland are making some people nervous.

They risk penalizing Swiss banks if they were to be introduced only in Switzerland, one of the sources said.

UBS is trying to attract customers with above-market rates on deposits, Reuters reported in October.

The new rules could dent competitiveness or, in a more extreme scenario, push clients to withdraw their money preemptively, the person added.