Swiss Watchdog Sees Lessons to Learn from Archegos Collapse

Switzerland’s top financial regulator said the collapse of Archegos Capital Management LP will have consequences for how banks deal with risk as one of the country’s biggest lenders counts its losses from exposure to the investment firm.

“This will be meticulously examined and there will be lessons, maybe for regulators, maybe for the banks who were involved, maybe for supervisors,” Mark Branson, the head of Swiss regulator Finma, said Wednesday in Berlin. “It’s too early to say what, but it shows that there are enormous dangers in this market environment and a lot of leverage in some investor portfolios.”

Last month’s implosion of Archegos, an investment firm that few even on Wall Street had heard of, underscored the risks that banks take in lending cash and securities to such funds and execute their trades as a key investment banking service.

Switzerland’s Credit Suisse Group AG and Nomura Holdings Inc. of Japan, the two lenders hit hardest by the collapse, have started to curb financing in their business with hedge funds and family offices.

“Experience shows that with firms active on financial markets, you can’t rule out such material individual events with material losses,” Branson said, without naming any banks. “There’s no completely preventive supervision where you look over the shoulder of every trader, risk manager or client adviser.”

Still, Branson said that the financial system has been served well by the reserves of capital and liquidity which banks have been forced to build up since the 2008 credit crunch.

There are dangers in the so-called shadow banking sector of financial firms that aren’t subject to the same level of scrutiny as traditional lenders, he added.

Branson spoke to German lawmakers in the lower house of parliament as he prepares to take over leadership of the neighboring country’s financial watchdog BaFin.

His appointment is key to Germany’s efforts to restore confidence in its regulator after the Wirecard AG accounting scandal, yet Credit Suisse’s woes related to Archegos as well as Greensill Capital have cast a shadow over that overhaul.

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