ZURICH (Reuters) – Losses from exposure to US investment firm Archegos have demonstrated the need for capital requirements “too high to fail” to ensure adequate resilience in Credit Suisse (SIX 🙂 and UBS, the Swiss National Bank (SNB) said on Thursday.
“This incident demonstrates that banks are exposed to significant risks that are not necessarily related to macroeconomic or system financial shocks, but can nonetheless lead to large losses,” the central bank said in its 2021 financial stability report. .
The SNB noted that both banks, “but in particular Credit Suisse”, had suffered heavy losses.
UBS reported a loss of $ 774 million from Archegos.
Meanwhile, Credit Suisse’s investment bank lost more than $ 5 billion to the collapse of Archegos, just after the collapse of more than $ 10 billion of client investments linked to the insolvent British financial institution Greensill.
While the SNB said Credit Suisse’s direct credit exposure to Greensill was significantly less than its exposure to Archegos, it said the bank could still incur costs for potential compensation claims filed by clients.
“Whenever the default of a single counterparty materially affects a bank, the matter generally has an operational risk dimension and the bank’s internal control processes must be reviewed,” the Swiss central bank added.
Both banks had proven resilient in the current challenging economic environment, which presented several risks to broader financial stability, SNB said.
More mutations of the coronavirus that could require additional or longer containment measures could delay a further recovery or even lead to a new recession, affecting banks’ credit portfolios, the central bank added.
The SNB noted signs of stretched valuations in the equity, credit and real estate markets in several countries, as well as historically high global public and corporate debt.
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