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ZURICH - UBS must improve its emergency plans following its takeover of Credit Suisse to ensure the bank can be wound down or sold without risking financial stability and taxpayer cash, Swiss regulator FINMA said on Tuesday.
FINMA said it had suspended the annual approval of UBS's recovery and emergency plans while Switzerland's last globally systemically important bank develops its approach as it integrates its former rival.
"Based on the experience of the Credit Suisse crisis, additional options for action are required to further strengthen crisis preparations and resolution planning for systemically important banks," FINMA said in a statement.
UBS's government-orchestrated rescue of Credit Suisse in 2023 shook Switzerland's financial system to its core and threatened the country's reputation for banking acumen and stability.
It has created an even larger business whose assets dwarf Switzerland's annual economic output, making it even more important that plans are in place for if something goes wrong and prompting a wave of new rules to make Swiss banking safer.
UBS said it had already begun work on further developing its existing emergency plans "in a targeted manner".
"As FINMA confirmed in its press release, UBS meets the current requirements to be resolvable in accordance with the preferred restructuring strategy in the event of a crisis," the Swiss bank said.
Shares in UBS have gained about 56% since the Credit Suisse deal, with investors largely cheering the boost to UBS's business
But as Swiss financial authorities try to live up to promises to make the system more robust, UBS faces a tougher second phase in which it must grapple with new regulations, all while undertaking a massive integration of Credit Suisse operations into its own.
FINMA noted that UBS was currently overcoming problems of harmonising its structures and IT platforms with Credit Suisse's through "manual data aggregation".
UBS's crisis planning would now need to adapt to new requirements in the coming years, the regulator said, including to the government's "too big to fail" rules, a set of proposals aimed at making banks safer including by hiking capital requirements.
Shares in UBS were down 1.2% on Tuesday, against a 0.3% drop in an index of European banks.
In its statement, FINMA said UBS must in particular overhaul its plan for protecting the Swiss business during an emergency.
The plan must ensure that business can continue to operate without interruption even if there were a risk of insolvency, FINMA said.
The Credit Suisse crisis had also highlighted problems related to the speed and extent of deposit withdrawals, and measures to generate liquidity should be "calculated even more conservatively and prepared even more comprehensively", it added.
The collapse of the country's second-largest lender prompted deep soul-searching among Swiss financial authorities.
FINMA has repeatedly called for greater powers to oversee banks, after it was accused of doing too little to prevent the implosion of Credit Suisse.
($1 = 0.8617 Swiss francs)
(Reporting by Tommy Reggiori Wilkes and Oliver Hirt; Editing by John Revill and Mark Potter)