The chairman of Swiss banking giant Credit Suisse on Friday warned against excessive government intervention in the lending policies of banks that have been bailed out by the state. "In view of the growing number of banks relying on government support, however, I have concerns that excessive state intervention regarding the lending policies of banks or the realignment of their structures could have negative implications for the entire sector," said Walter Kielholz.
Many of Credit Suisse's competitors, including local rival UBS, US banks Citigroup and Goldman Sachs, have received state funding to weather the financial crisis. Credit Suisse has turned to private investors, but has not taken government funds.
Kielholz acknowledged during the bank's annual general meeting that state intervention had been necessary to prevent a meltdown of the entire financial sector. However, he said the action by governments to inject funds into banks was already giving rise to a "two-tiered banking system."
"This has led to a distortion of competition, particularly in the refinancing market or in terms of client guarantees," he explained. "There is also uncertainty about how and when governments will be able to exit their stakes in these companies," he added.
In addition, he cautioned against over-regulation of the sector, saying that while stricter supervision has been prescribed for the sector, the "benefits of additional regulation have yet to be demonstrated." "In particular, I believe there is a risk that these changes could be exploited as a means of ushering in protectionist measures," he warned.
In a report on protectionism circulated to member states in March, the World Trade Organisation warned that government intervention to prop up banks could lead to uncompetitive institutions being kept solvent at the expense of foreign competitors.
With governments having a say in banks' operations, financing decisions could also be made based on national interests rather than commercial viability, the international trade body warned. "One such channel is through the provision of trade finance on beneficial terms to national exporters," it said.
Wary of government interference, some US financial firms including J.P. Morgan Chase and Goldman Sachs have in recent weeks said they want to repay federal funds as soon as possible. Goldman Sachs announced mid-April that it would put five billion dollars in common stock on the market to help it raise cash to repay a government rescue of 10 billion dollars.
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