Last month, Switzerland’s Federal Administrative Court issued a sharp rebuke to the country’s financial authorities over their handling of Credit Suisse’s collapse. The court declared that the decision of FINMA, the Swiss financial sector regulator, to write-off the Additional Tier 1 (AT1) bonds of Credit Suisse without writing down the equity shareholders, was illegal. For Indian policymakers and investors, the Swiss judgment inevitably evokes uncomfortable parallels with Yes Bank’s rescue in 2020. At the time, the Reserve Bank of India orchestrated a consortium-led recapitalisation of the private lender, which had been weakened by mismanagement and excessive exposures. As part of the resolution, AT1 bonds worth roughly Rs 8,400 crore were written down in full—again, before equity suffered a comparable impairment. The bond holders challenged the RBI’s decision to wipe them out before the Bombay High Court, which ruled in their favour. Yes Bank and the RBI challenged the Bombay High Court’s ruling; the appeal has been pending before the Supreme Court since 2023.
There is no strict legal or precedential link between the Swiss judgment and the Indian litigation. And yet, the similarity of FINMA’s and RBI’s choice to prefer equity shareholders over AT1 bond holders of banks, and the Swiss court’s judgment, reinforce longstanding issues on the predictability of bank resolution in India.
Credit Suisse bond wipe out
The dispute has its origins in one of the most contentious elements of the Credit Suisse rescue in 2023. When Swiss authorities engineered the shotgun marriage between UBS and its stricken competitor, they imposed a total write-down of 16.5 billion Swiss Francs in AT1 instruments—effectively wiping out bondholders, while allowing shareholders to receive UBS equity as consideration in the takeover. The inversion of the traditional creditor hierarchy startled global markets at the time, not least because AT1 holders, under normal circumstances, rank senior to equity investors. The court’s judgment reinforces this hierarchy.
In its reasoning, the Federal Administrative Court found FINMA’s order to annul the AT1 instruments lacked a sufficiently explicit legal foundation in Swiss law. The judges held that the write-off was an extraordinary intrusion on private property rights, permissible only if the legislature had clearly authorised such a step. The relevant contractual clause—activation of a so-called “Viability Event”—did not, in the court’s view, apply. Credit Suisse, it observed, remained adequately capitalised at the time; its difficulties stemmed from a liquidity squeeze rather than a solvency crisis. Emergency liquidity assistance extended by the government and the Swiss National Bank addressed a run on deposits, not a depletion of capital buffers. Since the defining threshold for a contractual write-down had not been crossed, FINMA’s intervention overstepped the boundaries of its legal authority.
FINMA and UBS have already signalled their intent to appeal. Crucially, the administrative court has not yet ruled on the question of restitution to the wiped out bondholders of Credit Suisse. Issues such as reinstatement of the bonds or compensation for losses will be taken up only if the Swiss Supreme Court upholds the finding that FINMA acted unlawfully.
The Yes Bank bond wipe out
A key principle of corporate finance is that when a company gets liquidated, equity shareholders will be paid out after all other claims against the company have been paid out. While no such prioritisation rules apply in rescue events, it is widely understood that equity shareholders are the first loss bearers. This is as true of a small-sized manufacturing company as it is of global banks such as Credit Suisse and Silicon Valley Bank. In wiping out Yes Bank’s bond holders without writing down its equity shareholders, the RBI upended this hierarchy.
The RBI’s choice in Yes Bank’s case brought to fore important questions on how the RBI interprets contractual triggers, the extent of its discretionary powers in resolving a banking crisis, and the reasonable expectations of market participants. Even as the Indian Supreme Court considers the challenge to the RBI’s decision, the Swiss court’s insistence on a clearer statutory basis for extraordinary interventions may offer it a useful reference point, even if not a binding one.
The Swiss court judgment serves as a reminder for the Indian Supreme Court that a case of significant commercial proportions is pending before it. The case has been listed before the Supreme Court for hearing on 15 dates during its 2.7 years lifecycle, 14 of which were in 2025. On eight of these occasions, the case was not taken up for hearing, and on the remaining dates when it was taken up for hearing, the case made no substantial progress. The frequency of its scheduling is rather unpredictable. It was first listed for hearing in March 2023, and the next hearing was scheduled in January 2025, when it was transferred to another bench of judges, one of whom retired in less than a month of the transfer. Meanwhile, the Bombay High Court stayed its own judgment on the bond wipe out, leaving the bondholders in the dark.
Finally, Yes Bank’s rescue highlights the gaping gap in the architecture of financial-sector resolution in India. The country’s Insolvency and Bankruptcy Code (IBC), enacted in 2016, offered a structured, time-bound mechanism for resolution for non-financial enterprises. Yet, the legislation explicitly excludes banks, whose failures often require speed, sector-specific expertise and a delicate balancing of interests across heterogeneous creditors. A financial firm fundamentally differs from a non-financial corporation in the diversity and complexity of its liabilities. A typical bank may owe obligations to depositors, senior unsecured creditors, holders of regulatory capital instruments, institutional funding providers, preference shareholders and common equity investors. When such a firm is placed into resolution, clarity on the ranking of these claims is imperative. Creditors must know ex ante where they stand in the waterfall of recoveries; regulators must be bound by processes that minimise uncertainty and reduce the scope for arbitrary reversals of hierarchy.
India’s current arrangements, shaped by exigency rather than design, fall short of this imperative for predictability in bank resolution. If the hierarchy of claims can be upended through administrative discretion—however well-intentioned—investors will price in a regulatory premium, raising the overall cost of capital for the financial system.
Also read: Yes Bank’s AT1 bonds tell the tale of broken financial regulation in India
A reminder for India
The Swiss administrative court’s ruling is not a repudiation of regulatory authority. Rather, it underscores the importance of anchoring such authority in clear law, particularly when their actions have the power to reorder creditors’ rights.
In India, this requires the creation of a modern, purpose-built resolution regime for financial institutions—one that provides clarity on creditor hierarchies, transparency in decision-making and legal certainty in moments of crisis.
The Swiss ruling, in its insistence on legality and due process, is a reminder that even in times of financial tumult, adherence to a stable rulebook is indispensable. For India, the absence of such a rulebook constitutes a vulnerability that should now command urgent attention.
Bhargavi Zaveri-Shah is the Co-founder and CEO of The Professeer. She tweets at @bhargavizaveri. Harsh Vardhan is a management consultant and researcher based in Mumbai. Views are personal.
(Edited by Theres Sudeep)