The near-collapse of Credit Suisse in March 2023 provides a significant modern comparison in examining how regulators respond when a major financial institution suffers severe losses, governance failures and a collapse of confidence.
Credit Suisse was one of Switzerland’s largest and most internationally important banks. In the years preceding its crisis, it had been affected by a series of scandals, substantial losses, weaknesses in risk management and repeated failures of governance. By March 2023, confidence deteriorated sharply and large deposit outflows placed the bank under severe liquidity pressure. FINMA later concluded that Credit Suisse had suffered a profound crisis of confidence and that weaknesses in strategy, risk management and governance had contributed materially to its difficulties.
Regulatory Intervention Rather Than Disorderly Failure
The Swiss authorities did not allow Credit Suisse simply to collapse into an uncontrolled liquidation.
On 19 March 2023, FINMA approved the takeover of Credit Suisse by UBS. The Swiss Confederation, Swiss National Bank and FINMA supported the transaction with extraordinary measures intended to preserve financial stability, protect creditors and maintain continuity for customers. The Swiss National Bank provided additional liquidity assistance backed by a federal default guarantee.
FINMA later stated that the measures had achieved the objective of safeguarding Credit Suisse’s solvency sufficiently to facilitate the UBS transaction, protect creditors and preserve financial stability.
The bank therefore did not continue as an independent institution, but its viable business, customer relationships, assets and operations were transferred into a stronger banking group rather than being abruptly destroyed.
Years of Problems Did Not Prevent Preservation
The significance of Credit Suisse for the BCCI comparison lies partly in the fact that the 2023 crisis followed years of serious difficulties.
Regulatory authorities had repeatedly identified weaknesses in governance and risk management. The bank had been affected by major losses associated with Archegos Capital Management, the collapse of Greensill Capital, litigation, reputational damage and other scandals.
FINMA’s post-crisis review concluded that Credit Suisse had repeatedly failed to implement sustainable improvements and that the regulator had taken numerous supervisory measures in the years before the crisis.
Yet when the institution finally reached a point at which confidence was collapsing, the regulatory response was not based on the proposition that prior misconduct and management failures rendered every part of the bank incapable of preservation.
Instead, the authorities sought to protect what remained viable.
The Importance of Confidence
Confidence was central to the rescue.
Credit Suisse experienced exceptionally large deposit withdrawals as customers and counterparties lost confidence. International regulators later identified the 2023 episode as an important example of the speed with which liquidity can disappear from a major institution in the modern banking system.
Swiss authorities treated preservation of confidence as a financial-stability objective.
The solution was therefore designed to reassure depositors, counterparties and markets that the bank’s operations would continue within UBS.
That approach is particularly relevant to the BCCI comparison.
In BCCI’s case, closure itself destroyed confidence across numerous jurisdictions before the proposed restructuring had been tested. Credit Suisse demonstrates a very different approach: loss of confidence became a reason to accelerate preservation and transfer, rather than a reason to allow the banking franchise to disappear.
The Role of Public Support
The Credit Suisse rescue also involved substantial official support.
The Swiss National Bank supplied emergency liquidity, while the Swiss Confederation supported elements of the rescue framework. The intervention was justified by Credit Suisse’s systemic importance and the potentially severe consequences of an uncontrolled failure.
This point should not be used to argue that BCCI was entitled to the same level of taxpayer support.
The circumstances were different.
Credit Suisse was deeply embedded in the Swiss and international financial system and had been designated a globally systemically important bank.
But the comparison becomes more significant when the source of capital is considered.
Credit Suisse required extraordinary official assistance to make an orderly solution possible. BCCI had substantial private financial support available from its Abu Dhabi majority shareholders.
The BCCI question is therefore not why Britain failed to provide a Swiss-style public rescue.
It is why a privately financed restructuring was not given greater opportunity to proceed.
Transfer to a Stronger Institution
The Credit Suisse case also illustrates an important principle of modern bank resolution:
a troubled institution can be transferred rather than destroyed.
UBS acquired Credit Suisse and the legal merger was completed in June 2023. FINMA described completion of the merger as bringing greater stability and clarity to the banks, their customers and the Swiss financial centre.
The solution allowed:
- customer accounts to continue;
- viable operations to be preserved;
- assets and liabilities to remain within the banking system;
- management and ownership to change;
- risks to be reduced over time; and
- regulatory supervision to continue during integration.
The result was not a declaration that Credit Suisse’s previous problems were insignificant.
Rather, the authorities distinguished between the failures of the previous institution and the value of its remaining banking franchise.
Comparison with BCCI
The comparison with Credit Suisse becomes more relevant when attention is given not merely to the eventual rescue, but to the corrective measures already being taken before the final regulatory intervention.
BCCI had also initiated far-reaching measures, with the support of its Abu Dhabi majority shareholders, to restore confidence in the institution, strengthen its financial position and support an extensive restructuring programme. The regulators were aware that substantial shareholder support had been committed and that the purpose of the restructuring was to protect creditors, preserve viable banking operations and place the Bank on a stronger financial footing.
The programme was not limited to providing additional capital. BCCI had begun addressing weaknesses in corporate governance, management structure and organisational control. New arrangements were being developed for the future management of the Bank, impaired assets were to be separated from stronger operations, and the group was to be reorganised into separately capitalised banking institutions.
A further major step was the proposed transfer of BCCI’s Central Office from London to Abu Dhabi, reflecting the change in majority ownership and the intention that the future direction, governance and financial support of the reorganised group should be centred more directly with its principal shareholders.
This bears comparison with Credit Suisse. In the years before its 2023 crisis, Credit Suisse had also been required to take extensive remedial measures to address deficiencies in governance, risk management and internal controls. When those measures ultimately proved insufficient to restore confidence, the Swiss authorities did not treat the existence of earlier management failures or scandals as making the entire banking franchise incapable of preservation. Instead, they facilitated a transfer to UBS, supported by exceptional official measures, in order to protect creditors and preserve financial stability.
The similarity is therefore important.
In both cases, regulators were dealing with institutions whose weaknesses had already been recognised and where substantial corrective measures were underway.
In the Credit Suisse case, the response to the final crisis was to strengthen the intervention, change ownership and preserve the viable banking business.
In BCCI’s case, substantial private financial support was already available, governance changes were being introduced, the Central Office was to move to Abu Dhabi, and a restructuring programme was intended to separate problem assets from stronger operations. Yet the programme was brought to an end before its effectiveness could be fully tested.
This gives rise to a more focused double-standards question:
If serious deficiencies in corporate governance, risk management and confidence at Credit Suisse could ultimately be addressed through stronger intervention, transfer of ownership and preservation of the viable banking franchise, why was BCCI’s own programme of recapitalisation, governance reform and restructuring not given comparable opportunity to proceed under the financial support and control of its Abu Dhabi majority shareholders?
The point is not that the two institutions were identical. They were not. Credit Suisse was systemically important to Switzerland and the international financial system, whereas BCCI occupied a different position.
But systemic importance principally explains the willingness to provide extraordinary public support to Credit Suisse. It does not fully explain why BCCI’s privately financed corrective programme, already designed to address solvency, governance and organisational weaknesses, was not allowed greater opportunity to establish whether the stronger parts of the Bank could continue under a fundamentally revised structure.
The comparison therefore reinforces the wider question of proportionality: whether regulators were equally willing to distinguish between past management failures and the future viability of an institution when the bank concerned was BCCI.
The Double-Standards Question
The Credit Suisse comparison is strongest when expressed in terms of regulatory philosophy rather than identical circumstances.
The question is not:
“Credit Suisse was rescued, so BCCI should automatically have been rescued.”
The stronger question is:
If years of losses, scandals, governance failures and an acute collapse of confidence at Credit Suisse could ultimately be addressed by transferring its viable banking operations to UBS with extensive regulatory and official support, why was comparable emphasis not placed on preserving BCCI’s viable operations through the restructuring already financed by its Abu Dhabi majority shareholders?
A further question follows:
Why was the collapse of confidence in Credit Suisse regarded as a reason for urgent intervention to preserve its franchise, while in BCCI the destruction of confidence was accepted as an immediate consequence of closure?
Systemic importance provides part of the explanation.
Credit Suisse was a globally systemically important institution and its uncontrolled failure posed substantial risks.
But systemic importance principally explains why public resources were used.
It does not fully answer why private capital and restructuring already available to BCCI were not given greater opportunity to preserve viable operations.
Perspective
Credit Suisse provides a modern illustration of a regulatory principle that appears repeatedly in later banking crises:
serious misconduct, governance failure, financial weakness and even an acute crisis of confidence do not necessarily require destruction of the banking franchise.
Regulators can replace ownership, change management, provide liquidity, transfer the business and isolate risks while preserving viable operations.
The relevant question for BCCI is whether the same underlying principle of institutional preservation where a credible restructuring is available was applied consistently.
Also read:
- FINMA, Report on the Credit Suisse Crisis - Lessons Learned (2023). FINMA’s detailed post-crisis assessment of Credit Suisse’s governance, risk management, supervisory history and the events leading to the UBS takeover.
- FINMA, “FINMA approves merger of UBS and Credit Suisse”, 19 March 2023. Official announcement explaining the takeover and the extraordinary measures taken by Swiss authorities.
- FINMA, “Completion of large banks merger brings clarity and stability”, 12 June 2023. Official record of completion of the UBS-Credit Suisse merger.
- Swiss National Bank / BIS, Thomas Jordan, “The Swiss National Bank’s role as lender of last resort in the Credit Suisse crisis” (2023). Useful for understanding the extraordinary liquidity support provided during the crisis.
- Bank for International Settlements, material on the 2023 banking turmoil and resolution framework. Provides a wider international perspective on Credit Suisse and the lessons for large-bank resolution.
- Double Standards: The Forced Closure of the BCCI Bank. For comparison with BCCI’s treatment and the wider question of whether restructuring and preservation were applied consistently across institutions.
