Federal Council launches consultation on "too big to fail" legislative proposals

Bern, 22.12.2010 - At its meeting today, the Federal Council submitted for consultation legislative proposals for dealing with the systemic risks of big banks. The draft for a corresponding amendment to the Banking Act is based on the proposals of a group of experts. According to the draft, systemically important banks should hold more capital, meet more stringent liquidity requirements and improve their risk diversification. They should be organised in such a way that a national economy's systemically important functions can be maintained even in the event of threatened insolvency. In order to promote the issue of new reserve and convertible capital in Switzerland, the Federal Council is also proposing tax measures. The consultation will last until 23 March 2011.

The proposed package of measures is designed to prevent the state from having to use tax revenues in the future in order to bail out systemically important banks and also prevent entire national economies from running into difficulty because of financial crises. In the future, there should no longer be any banks that are too big to be abandoned by the state (too big to fail).

In November 2009, the Federal Council appointed a Commission of Experts consisting of representatives from the public sector, academia and business circles to put forward proposals to alleviate the too-big-to-fail problem. The Commission of Experts submitted its final report to the Federal Council on 30 September 2010.

The experts' legislative proposal was taken up by the Federal Council and fleshed out. The key focus of the package is on four core measures:

  • Strengthening of the capital base
  • More stringent liquidity requirements
  • Better risk diversification
  • Organisational measures to ensure the maintenance of systemically important functions (e.g. payment transactions) in the case of threatened insolvency 

For implementation of the more stringent liquidity requirements, two new instruments need to be provided for in the Banking Act: reserve capital and convertible capital (contingent convertible bonds, or CoCos). The issue of CoCos in Switzerland will significantly reduce the legal risks in the case of an officially ordered conversion in a crisis. The Federal Council is proposing tax measures to promote the issue of bonds, and thus also CoCos, in Switzerland as well as to boost the Swiss capital market. These include, for example, the abolition of the issue tax on debt capital and withholding tax changes. Switzerland as a business location will benefit from this.

The draft law also includes regulation of the remuneration of those systemically important banks that have to rely in any way whatsoever on federal funds despite all efforts to alleviate the too-big-to-fail problem. In such cases, the Federal Council will be obliged to order that adjustments be made to the remuneration system of the bank in question.The consultation by the interested parties will last until 23 March 2011. The Federal Council's dispatch for the attention of parliament is expected in spring 2011 so that the bill can be considered by the first chamber during the summer session and by the second chamber during the autumn session. The legislative amendments could come into force at the start of 2012 at the earliest. Transition periods should facilitate implementation.

Address for enquiries

Mario Tuor, Communications, State Secretariat for International Financial Matters (SIF), tel. +41 31 322 46 16


Federal Department of Finance