The recent handling of Credit Suisse's collapse by Swiss authorities, which involved merging it with UBS, has not been well-received by U.S. regulators. Martin Gruenberg, chairman of the Federal Deposit Insurance Corporation (FDIC), expressed his disapproval, stating that U.S. authorities would opt to fully shut down a major bank in a similar situation.

Gruenberg discussed a paper issued by the FDIC, which outlines the procedure for managing the failure of a globally significant bank like Credit Suisse. The FDIC's approach is a clear signal that the era of government bailouts is over, emphasizing that shareholders, creditors, and bank executives must face the consequences of their actions.

Gruenberg criticized the Swiss authorities for not subjecting Credit Suisse to a formal resolution process, calling it a missed opportunity for financial stability and market confidence. The FDIC's resolution framework aims to manage the orderly failure of any major financial institution, including giants like JPMorgan.

The FDIC's approach includes drastic measures such as removing top management, eliminating shareholder value, and imposing losses on holding company creditors, while ensuring that essential operating subsidiaries continue to function to prevent economic disruption.

This strategy stems from powers granted under the Dodd-Frank Act, which established new legal frameworks for managing the failures of significant financial entities differently from smaller bank collapses.

In contrast, the Swiss authorities allowed Credit Suisse to merge with UBS, preserving some shareholder equity and imposing losses on certain bondholders. This decision has sparked international debate and criticism.

Following the merger, Switzerland has proposed new measures to strengthen its banking sector, including enhancing the powers of the Swiss financial regulator, Finma, and tightening capital requirements on major banks.

The Credit Suisse collapse has broader implications beyond regulatory adjustments. UBS CEO Sergio Ermotti suggested that the merger should serve as a model for future consolidations in the banking sector, creating stronger, globally competitive banks. However, he acknowledged that the current political and economic climate in Europe does not fully support such significant mergers.

The FDIC's message is clear: investors should be cautious as the safety net of bank debt is not as secure as it once was. This new era of resolution methods marks a significant shift in the banking industry, with potential global implications.