Federal Council adopts amendment of too-big-to-fail provisions

Bern, 11.05.2016 - During its meeting today, the Federal Council adopted the amendments to the current too-big-to-fail provisions, thereby fleshing out the need for action identified in the evaluation report of February 2015 on the too-big-to-fail risks in Switzerland. The new requirements have to be met by the end of 2019. The resilience of systemically important banks will be further enhanced as a result, and the possibility of restructuring or orderly resolution without costs to taxpayers will once again be improved. With the new provisions, Switzerland will be one of the countries with the highest capital requirements in the world for global systemically important banks and will meet the capital standard for such banks as approved by the G20 countries. The amendments will enter into force on 1 July 2016.

The Federal Council already identified the need for action in the evaluation report adopted on 18 February 2015 in relation to the Swiss too-big-to-fail provisions. Subsequently, a working group under the leadership of the Federal Department of Finance (FDF) with representatives of the Swiss Financial Market Supervisory Authority (FINMA) and the Swiss National Bank (SNB), in consultation with the concerned banks, drew up proposals for the necessary legal amendments. The parameters for the planned ordinance amendments were adopted by the Federal Council on 21 October 2015.

Strengthening of the capital base

Systemically important banks should have sufficient capital to ensure continuity of service so that even in a stress scenario they do not require state support or have to be restructured or wound up (so-called going concern requirements). These requirements consist of a basic requirement for all systemically important banks, as well as a progressive component, depending on the degree of systemic importance. The latter is measured according to the market share and size criteria that already exist in the current system. The basic requirement for the leverage ratio (proportion of regulatory capital relative to unweighted total assets) is 4.5%, and 12.9% for risk-weighted assets. Added to the expected progression based on the benchmarks, this results in going concern requirements for the two big banks of 5% overall for the leverage ratio and 14.3% for risk-weighted assets.

Capital for restructuring or winding up

On top of the going concern requirements, systemically important banks operating internationally must hold additional capital to guarantee their restructuring or continuation of the systemically important functions in a functioning unit and wind-up of the other units without recourse to public resources (so-called gone concern requirements). These mirror the going concern requirements. For the two big banks, this means that they must fulfil additional gone concern requirements of 5% for the leverage ratio and 14.3% for risk-weighted assets.

The relevant gone concern emergency plans for systemically important domestic banks have yet to be developed. The specific need for gone concern requirements for these banks will be the subject of the Federal Council's next evaluation report, which is to be adopted in accordance with Article 52 of the Banking Act by the end of February 2017.

Categorisation

Motion number 12.3656, "Concrete capital requirements for non-systemically important banks in a separate ordinance or by means of a prompt revision of the Capital Adequacy Ordinance", transmitted by Parliament on 19 June 2013, will additionally be implemented with the ordinance amendments. The motion called for the Federal Council to be given the mandate to govern the capital requirements for all banks in an ordinance and thereby ensure that the capital requirements for systemically important banks and other banks are strictly proportionate and do not distort competition, irrespective of the selected calculation approach.


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