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Banks Can Withstand Stock Crash, Swiss Banker Says

October 26, 1987|From Reuters

ZURICH — A leading Swiss banker forecast Monday that the world banking system will cope with the crash in share prices, but some financial institutions will be hit by losses.

Nikolaus Senn, chief executive of Union Bank of Switzerland, said in an interview:

"We had a few pre-shocks and everybody called it consolidation. What we now know is that was the beginning of an earthquake, and we'll probably have some aftershocks.

"But one should not panic. The economy is in good shape, not only in Switzerland, but also in the United States, in Germany and in Japan.

"People were paying unrealistic prices. It's no surprise that something happened. For me it was the dimension of the reaction that was surprising.

"The shock will hit quite a few financial institutions--those with big equities portfolios or those who built them up on narrow margins.

"No, the system is not in danger. There will be losses, but the banking system will be able to digest them."

But he added that the warning signal would have a sobering effect on financial institutions and markets.

"A lot of the so-called instruments that have been created recently will disappear. Currency swaps and interest swaps will continue. But the wave of securitization will stop."

But despite the inevitable political pressure that will come to re-regulate banks and financial markets, Senn saw no reason for returning to the stricter controls prevailing before the liberalization of the past five to seven years.

"You can't stop an earthquake with regulations," he said.

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