Hearing on amendment of too-big-to-fail provisions

Bern, 22.12.2015 - Today, the Federal Department of Finance (FDF) initiated the hearing on the amendment of the current too-big-to-fail provisions, in which the parameters adopted by the Federal Council on 21 October 2015 are formulated. The hearing will run until 15 February 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 FDF with representatives of the Swiss Financial Market Supervisory Authority (FINMA) and the Swiss National Bank (SNB) 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.

Going concern requirements

By meeting what are known as going concern requirements, 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. The going concern 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 which 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% overall for risk-weighted assets.

Gone concern requirements

Going concern requirements cannot prevent the company from being restructured or wound up in every case. 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 (gone concern). This mirrors the going concern requirements in that the two big banks must fulfil gone concern requirements again of 5% for the leverage ratio and 14.3% for risk-weighted assets.

The relevant gone concern emergency plans for systemically important banks which do not operate internationally 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 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, should additionally be implemented with the ordinance amendments. The motion called for the Federal Council to govern the capital requirements for all banks in a separate 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.

Address for enquiries

Roland Meier, Media Spokesperson FDF
Tel. 058 462 60 86, roland.meier@gs-efd.admin.ch