Swiss parliament rejects Credit Suisse rescue package

In a surprise move on Wednesday, Switzerland's parliament rejected the government's 109 billion Swiss francs ($120.82 billion) aid package for Credit Suisse's (CSGN.S) merger with UBS (UBSG.S), meaning that the increasingly desperate rescue effort will have to wait without the full backing of the parliament.

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In spite of the fact that the upper house of parliament had approved the government's contribution to the rescue package, parliament's lower house pushed back on Wednesday as well.

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The lower house had already rejected the proposals in a late-night meeting on Tuesday, which forced the upper house to find a solution when it met again on Wednesday.

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As a compromise, the upper house of the parliament passed changes to the bill on Wednesday morning, but it was not enough to persuade the lower house to change its mind.

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This proposal was rejected by 103 votes to 71 in favor, a similar level of opposition to the previous evening's vote.

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The co-president of the Social Democrats, Cedric Wermuth, said just before the lower house vote that the party would just not be able to support the funding initiative.

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Even though the government can't alter its commitment, made under emergency law, the vote is nevertheless viewed as a symbolic blow to the government, which has angered many politicians by bypassing the nation's legislative process.

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"The Swiss Finance Ministry informed the public after the vote that this decision has no impact on the takeover of Credit Suisse that was decided on March 19.

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As a result of the urgency of the matter, the parliament's finance delegation had already approved the package of support as binding, the report said.

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"As of now, all funds have been committed to full," the statement went on to say.

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The lawmakers who backed the approval of the deal were concerned about the image of Switzerland which had been damaged by the deal.

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"In the end, it really does not matter what we decide in detail, but it would be a very bad signal if these loans were rejected," Eva Herzog, who is a member of the Council of States, the upper house of parliament, said before the vote.

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After a full day of heated debates that lasted into the early hours of the morning in four of the country's national languages, the upper house of the parliament passed a series of changes aimed at convincing the skeptics.

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There was also a proposal made by the Swiss government that an amendment be put forward to the country's Banking Act to be drafted. It would be aimed at reducing the risks posed by systemically relevant banks, such as Credit Suisse and UBS for Switzerland, by, for example, raising capital requirements and restricting bonuses to mitigate the risks they pose to the system.

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In a speech to parliament on Wednesday, finance minister Karin Keller-Sutter urged lawmakers to give careful consideration to the message their rejection of the rescue package sent to the world as they voted.

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"Is there a signal you wish to send internationally? Are the institutions reliable? Are you concerned about the stability of the financial market in a place where there is already a financial center of some importance?"

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Several members of the Swiss parliament were summoned to the capital city, Bern, for an extraordinary session. The meeting was called to discuss the government's approach to the collapse of Credit Suisse which many in the country have blamed on the top management of the bank.

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There has been widespread criticism of the shotgun marriage that took place last month when the bank was taken over by UBS for 3 billion Swiss francs and propped up by more than 250 billion Swiss francs in guarantees and support.

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In order to sign the bill off, the government invoked Swiss emergency law, which angered almost 250 legislators who were left without a say in the matter.

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"The excessive use of emergency law has reached a point in the last three years that is beginning to annoy me," Hansjoerg Knecht, a member of Parliament's upper house, told the press on Tuesday.

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($1 = 0.9022 Swiss francs)