The Swiss government failed to act swiftly to prevent a credit and tax crisis that had endangered banking giant UBS AG in 2008-2009 and could have sunk the Swiss economy, a parliamentary report said on Monday.
The 360-page report, the result of a 15 month inquiry by two parliamentary committees and 59 closed-door hearings with senior Swiss officials, showed the government waited for five months before decisively stepping in to tackle UBS's credit woes in September 2008.
The report said Berne also relied too heavily on information coming from the financial industry and failed to scrutinize itself or recognize the implications of a U.S. tax probe into UBS -- the world's second biggest wealth manager by assets -- that eventually pierced a hole in Switzerland's treasured banking secrecy laws.
The authorities were too easily satisfied by their initial findings, said the report.
The inability to detect a crisis of such proportion ... raises numerous questions regarding the appropriateness of the objectives and instruments of financial markets supervision, it added, as it recommended ministries work more closely together.
The actions of UBS's top management were not at the center of the parliamentary inquiry but the report called on financial regulator FINMA to find out to what extent UBS executives knew of the U.S. tax violations committed at their bank.
The Swiss government offered 6 billion Swiss francs ($5.2 billion) to UBS in October 2008 to prevent the bank collapsing under more than $50 billion of writedowns on toxic U.S. assets.
Four months later regulator FINMA found itself obliged to order UBS to disclose some bank client data to U.S. tax officials to avert criminal charges against the bank, a first breach of Swiss bank secrecy rules that grew wider over the following months.
Swiss President Doris Leuthard told reporters the government would carefully weigh the report's recommendations, but added that introducing any changes may take time. FINMA said it would state its position on the report by year end.
The Social Democrats, the country's second-largest political force, said the report did not go far enough and called for a parliamentary investigative commission to shed light on the role of top UBS managers and their influence on the finance ministry.
However, the authors of the report said they would prefer to see some concrete action taken to address current failures rather than see another lengthy inquiry.
The findings came as the Swiss parliament prepared for a debate on whether to approve a Swiss-U.S. treaty to end the U.S. tax case against the bank.
The parliament's upper house is due to discuss whether to support a Swiss-U.S. tax deal over UBS on Thursday. The debate will then move to the lower house next week.
The chances that the deal will go through parliament rose after Switzerland's largest party, the right-wing SVP, made a U-turn earlier in May in support of the deal.
Support for the deal would end a Swiss legal deadlock and allow the country to meet a commitment to pass onto the U.S. tax authorities the names of 4,450 U.S. clients of UBS holding accounts in Switzerland.
But the agreement still faces potential hurdles as the Social Democrats may seek a national referendum that would push the data exchange beyond an agreed end-of-August deadline.
Swiss ministers have said parliamentary backing is needed to avoid a U.S. backlash and negative repercussions on the economy.
Swift parliamentary approval would also spare UBS chief executive Oswald Gruebel further distractions on the tax issue as he continues to rebuild the bank and takes steps to stop an exodus of client money.
Shares in UBS were 1.1 percent higher at 1320 GMT on Monday, outperforming a 0.2 percent rise in the STOXX European banks index, after head of wealth management Juerg Zeltner said he expected the number of UBS client advisers to grow in the second half of this year, signaling the end of client money outflows.
We interpret Zeltner's tonality in the interview to (mean we will) see positive net new money flows again toward the end of the year depending on markets, said Sarasin analyst Rainer Skierka.
($1=1.148 Swiss francs)
(Additional reporting by Catherine Bosley; Editing by David Holmes, Greg Mahlich)