What Switzerland should have done to save Credit Suisse

One of the key recommendations: possibly more capital at the country’s remaining big bank, UBS.

The conclusions came in a sweeping report meant to be Switzerland’s ultimate lessons-learned look at an event that threatened the core of the country’s identity as a well-run, financial safe haven.

The regulator, the Swiss Financial Market Supervisory Authority, commonly known as Finma, investigated Credit Suisse over and over again before its ultimate meltdown in March 2023, but never took adequate action, according to the findings of a Swiss parliamentary commission. Credit Suisse’s weak governance and management were also to blame, the report found. Credit Suisse was bought by UBS in a government-forced rescue.

The findings of Friday’s report will feed into an update of Switzerland’s “too big to fail" banking laws, which are aimed at avoiding government bailouts. The outcome is expected to be an increase in capital requirements for UBS. The parliamentary commission said UBS’s large size in relation to Switzerland’s economy has to be taken into account.

UBS said Friday it didn’t receive regulatory concessions like Credit Suisse did, and now holds additional capital since the merger. UBS, which has openly criticized some of Switzerland’s efforts to change banking regulation in the wake of Credit Suisse, said it “supports most of the recommendations" made by the country’s governing Federal Council but said changes should be targeted.

Switzerland’s reputation as a fortress for wealth was shaken first by a series of scandals at Credit Suisse around money laundering, banker theft and corporate spying, and then by the its sudden demise. The bank had been limping for years but was felled by a combination of a misfired turnaround strategy and panic over runs at U.S. banks in March 2023.

The parliamentary report traced Credit Suisse’s problems back to the years after the 2008 financial crisis when Switzerland introduced and added to rules to make its banks sounder. It found that the country’s Federal Council repeatedly granted time extensions on rules at Credit Suisse and UBS, while Finma granted more concessions that flattered the appearance of Credit Suisse’s capital adequacy, an issue identified in a 2023 Wall Street Journal article.

Credit Suisse grew from being one of Switzerland’s most-revered banks, founded by a national hero in 1856, into a global behemoth, crafting complex deals and investments for companies and the world’s wealthy.

But in its last decade, it increasingly featured as a problem child of the financial system and became known for being on the racier side for deals and customers. It tried, but never successfully turned over a new leaf. In its final years, it rotated through management and board members, who couldn’t restore confidence.

The parliamentary commission studied the years before Credit Suisse got caught in a liquidity crisis. It also probed the weekend of the bank’s rescue by UBS, after government officials told the banks they must merge. The takeover was billed by Switzerland as a commercial solution.

But in addition to the squeeze on the banks to agree to a deal, emergency legislation was passed to strip shareholders of any say, and sweetened the deal for UBS by canceling $17 billion in Credit Suisse debt. The cancellation sparked lawsuits in Switzerland and New York, which are ongoing.

The report said authorities balanced both banks’ interests with those of the state, even if a takeover by a foreign bank might have been preferable for competition reasons.

Write to Margot Patrick at margot.patrick@wsj.com