UBS is too big for Switzerland

| 15 April 2009 21:29

I am sure you have seen the catastrophic financial results of Swiss bank UBS released this week. I have been saying for quite some time that UBS is too big to fail, but also too big to bail for tiny Switzerland. In my view, the recent financial results demonstrate that, although this situation has stabilised somewhat, UBS still represents a grave risk to the Swiss economy. I am not alone in this. Manuel Ammann, a banking expert of noted German-language university St. Gallen has shared similar views with Swiss daily Tagesanzeiger. My translation is below.

Today’s announced strategy by UBS, to continue investment banking and to remain active as a universal bank, is economically risky, according to banking expert Manuel Ammann. “UBS is really too big for Switzerland,” he said today in “Rundschau” on Swiss television. In order to stabilize the banking system, we need a lot of small banks which carry much less systemic risk.

The professor at the University of St. Gallen is confident that the world will still experience more financial crises – among other things, because in recent months “problematic incentives” have been created. Through the intervention of the state, the wrong signals have been sent to the banks – if one fails, in an emergency, the state will come to the rescue. At present, bankers still feel burned by the current experience. But a few years from now, when all is well again, the same risks will be taken.

The worst of the current financial crisis is behind us. “There is less talk about the collapse of the international financial system.” Nevertheless, more negative news from the financial sector will likely continue for now.

Ammann is essentially making the same argument that others like Willem Buiter make i.e. that large banks pose too much of a systemic risk and must be broken up as a policy remedy to prevent further crises.

There is a video of Amman at the link below, which should be interesting if you speak German (especially Switzerduitsch).

Source
Die UBS ist zu gross für die Schweiz – Tagesanzeiger

avatar About Edward Harrison

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages, a skill he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.

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