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CS Takes the Sub Way

This is a link to an FT article explaining the changes currently being implemented by Credit Suisse to its legal structure in response to the resolution planning requirements of its main regulator.

According to the article, CS will set up a Swiss subsidiary, which will house its Swiss-booked activities (retail, private, corporate and institution banking). In addition, it will combine its two London subsidiaries and transfer its US derivatives business, which is currently booked in London, to its US subsidiary. Once finalised, CS plans to issue bail-in-able debt from its group holding company, thus facilitating “single point of entry” resolution. UBS is thought to be considering a similar restructuring.

In Switzerland, as will be the case in the UK under the Banking Reform Bill, a bank’s regulatory capital requirement is, in part, linked to its resolvability. Apparently, CS believes that the changes to its legal structure may lead to a lowering of this requirement, although there is no indication of scale at this point.

The process of subsidiarisation, in which branch structures are replaced by local subsidiaries, is an increasingly common theme in the resolution planning of banks. Certainly it assists resolvability by helping clarify the identity of lead resolution authorities in each circumstance. However, subsidiarisation only assists up to a point. At its core, the question of resolvability relates to data: the ability to acquire and update data, the accuracy and relevance of data and the capacity to interpret, relate and ultimately make sense of data. Fundamental to all of these aspects is a bank’s attitude and approach towards the question of data. When all is said and done, a cultural, rather than merely a structural, change is required if the question of “too big to fail” is ever to be properly addressed.

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