zadek25_ FABRICE COFFRINIAFP via Getty Images_creditsuisseUBS Fabrice Coffrini/AFP via Getty Images

Who Should Be Bailed Out Next?

The UBS-Credit Suisse deal proves that, when the will is there, authorities can act quickly and ambitiously to mitigate systemic risks, even if the outcome is unpredictable. The same kind of bold, concerted leadership must now be applied to sovereign-debt crises and climate change.

GENEVA – The shotgun wedding of UBS and Credit Suisse was hastily arranged in the spirit of ensuring our collective safety. As Swiss National Bank Chair Thomas Jordan noted, Credit Suisse’s size and global network makes it a “a global systemically important bank,” and having UBS take it over – thereby forestalling a bankruptcy – “ensures that the systemically important function remains secure.” Might we dare to hope that a similar sense of urgency and ambitious deployment of resources be brought to bear on the compounding crises confronting more than half of the world’s low-income countries?

The government-brokered UBS-Credit Suisse merger was uncharacteristic for the Swiss, and not only because it was concluded on a Sunday, normally Switzerland’s enforced day of rest. The government invoked emergency laws to override shareholders’ right to vote on mergers, and wrote down all of Credit Suisse’s additional tier-one (AT1) bonds – some $17 billion worth – running the risk of years of litigation.

Some fear that these actions will tarnish Switzerland’s reputation with investors. Maybe they will. But if the merger succeeds in stabilizing the financial system, it will be more than worthwhile for us all. The reality is that this outcome is not guaranteed, but not because of any flaw in the authorities’ decision-making or, indeed, any factor that the authorities can control. The bottom line is that complex systems are unpredictable, and even well-crafted interventions can fall short.

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