Credit Suisse rescue package rejected by Swiss parliament

Switzerland’s parliament rejected on Wednesday the government’s 109 billion Swiss francs ($120.82 billion) aid for Credit Suisse’s merger with UBS, leaving the fallen bank’s hastily arranged rescue without a largely symbolic parliamentary blessing

While the upper house had approved the government’s contribution to the rescue package, parliament’s lower, and larger chamber, pushed back again on Wednesday.

It had already rejected the proposals in a late night session on Tuesday, forcing the upper house to find a solution when it met again on Wednesday.

Seeking a compromise, the upper house passed changes to the measure on Wednesday morning, but it was not enough to sway the lower house lawmakers.

They turned it down by 103 votes to 71 in favour, a similar level of opposition to the night before.

Speaking just before the lower house vote, Cedric Wermuth, the co-president of the Social Democrats said the party just could not support the funding.

While the government’s commitment, made using emergency law, cannot be overturned, the vote marks a symbolic rebuke for the authorities, whose decision to largely bypass the nation’s legislative has angered many politicians.

Lawmakers who backed an approval of the deal, voiced concern about Switzerland’s image.

"It doesn’t really matter what we decide in detail, but it would really send a bad signal if these loans were rejected," said Eva Herzog, who is a member of the Council of States, the upper house, before the vote.

Following a day of heated debates held in the country’s four national languages, that continued into early morning hours, the upper house passed changes aimed at winning over the sceptics.

They included a proposal for Switzerland’s federal government to draft an amendment to the country’s Banking Act. Its aim would be to reduce the risks posed by systemically relevant banks, such as Credit Suisse and UBS for Switzerland, by, for example, raising capital requirements and restricting bonuses.

Addressing parliament before the vote on Wednesday, finance minister Karin Keller-Sutter told lawmakers to consider what message their rejection of the rescue would send to the world.

"What signal do you want to give internationally, are the institutions reliable, do you value financial market stability in a place where you already have a financial centre with a certain importance?"

Lawmakers were recalled to the country’s capital, Bern, for the rare extraordinary session to discuss the Swiss government’s open chequebook response to a collapse that many in the country have blamed on Credit Suisse’s top management.

Last month’s shotgun marriage which saw the bank taken over by rival UBS for 3 billion Swiss francs and propped up with more than 250 billion Swiss francs in guarantees and support has drawn widespread criticism.

The government invoked Swiss emergency law so that a sub-group of six members of parliament approved the financial commitment on behalf of the legislative body, to the ire of the almost 250 lawmakers left without a say.

"The use of emergency law has reached a level in the last three years that is beginning to annoy me," Hansjoerg Knecht, a member of Parliament’s upper house, said on Tuesday.

Rejection sends a 'bad signal'

Wednesday's vote came after the upper house offered amendments to sweeten the deal following previous failed votes.

It saw parties from the right and the left wings of the parliament come together in a rare voting bloc, with the final tally at 103-71.

The government's decision to push through the rescue package has angered many in a country that is used to frequent referendums on a variety of policy issues.

Despite the mere symbolism of Wednesday's vote, the attempt by the upper house to seek a compromise makes clear how muchthe government had hoped to secure the legislature's retrospective approval.

"It doesn't really matter what we decide in detail, but it would really send a bad signal if these loans were rejected," Eva Herzog, a member of the Council of States, the upper house, said before the vote.

Why did the Swiss government orchestrate the Credit Suisse buyout?

The Swiss government negotiated the UBS buyout of Credit Suisse in order to prevent the 167-year-old banking institution from collapsing and possibly triggering further crashes across the global banking system.

UBS agreed to pay 3 billion Swiss francs to take on its troubled rival but on the condition of billions more in guarantees from the Swiss central bank.

The government may have prevented further banking troubles with its rescue deal, but Wednesday's vote represents disapproval of the move ahead of legislative elections set to take place this October.