The credit crisis of the Glarner cantonal bank becomes a never-ending story

Branch of the Cantonal Bank of Glarus in Glarus. (Image: Arno Balzarini / Keystone)

Whose fault is it when something is wrong with a bank, for example because the board of directors loses control of the operating boss? This question holds the heads of Raiffeisen Switzerland in abeyance. We forget that another Swiss financial institution is still involved in a court case involving much larger damages than at Raiffeisen Switzerland. For years, the courts have sought to legally assess the credit losses suffered by the Glarner Kantonalbank (GLKB) outside the canton.

The case will not last long because the Glarus court has just dismissed a claim for damages from the GLKB in the Cantonal Court. He criticizes, among other things, that his clarifications were not sufficient to make a clear verdict on who is responsible for the GLKB's high credit losses.

Financial surplus

In 2010, the GLKB filed with the cantonal court a claim for liability against former members of the bank council (corresponding to the members of the board of directors), former members of the executive board and the ex-external auditors. The institute claimed damages of CHF 34 million. This was the result of loan commitments in the years 2005 to 2007, when former bank manager Bernt Arpagaus forced business outside the canton. Although this is allowed by the Cantonal Banks Act, the institute was not allowed to take excessive risks.

In March 2015, the Cantonal Court had ordered the defendants to pay a total of CHF 15 million. Among other things, he argued that over paying the defendants was financially incapable. This verdict also intervened because it severely limited the solidarity of the Bank Council, the Executive Board and the Auditors.

It is also disputed how the amount of damages should be calculated at all. Today 's GLKB management claims a write – off here, while the Superior Court points out that the bank must probably compare the losses with the interest earned on the risky loans. Even though they were associated with higher risks than "ordinary" loans, they would have decreased the higher returns for this reason. In order to reach a complete verdict, it might be necessary to control the overall activities of the GLKB

Balance Act of the Board of Directors

The Case Remains so confusing and has several scenarios. However, the central question is what are really the credit risk operations and how much the board of directors should oversee management in its work. This issue is particularly delicate for financial institutions because according to the banking law, the board of directors of an institution should not interfere in daily affairs. Management alone is responsible for this. From the point of view of the GLKB, the Bank Council has not clearly regulated the loans outside the original territory of the bank; For the Supreme Corps, controversial lending activity was beyond good and evil, which is why management assumes responsibility for losses.