The Federal Council of Switzerland is consulting on an amendment to the Capital Adequacy Ordinance. The proposal concerns three separate topics: the Federal Department of Finance (FDF) wishes to simplify the requirements for certain small banks and securities firms, to adjust the risk-weights for domestic residential investment property with a high loan-to-value ratio, and to ensure that the parent banks of systemically important banks are sufficiently well-capitalized in the event of a crisis. The consultation will run until July 12, 2019.
The rationale and details for the proposed amendments follow:
- Switzerland has implemented the international standards put in place post crisis due to which the national regulation has become more complex and can place a particularly heavy burden on small institutions. Therefore, the Federal Council intends to ease the burden on small, particularly liquid and well-capitalized banks and securities firms with simplified requirements for calculating the capital requirements.
- In Switzerland, nearly 30% of mortgages are used to finance residential investment property. Price corrections for these properties, as well as rising interest rates, can lead to considerable losses for banks. To increase their resilience, banks should thus use additional capital to underpin mortgages on domestic residential investment property with a high loan-to-value ratio. This measure also applies to mortgages granted by insurance companies. The FDF will ask the Federal Council to give preference to self-regulation in the area of residential investment property, provided that banks quickly offer their support for at least an equally effective strengthening of the existing self-regulation approved by FINMA.
- Gone-concern requirements are intended to ensure that a systemically important bank in difficulty can be restructured and wound up in an orderly manner without financial assistance from the state. The Federal Council introduced gone-concern requirements at group level for UBS and Credit Suisse back in 2016. Gone-concern requirements have also been in force to a reduced extent for domestically focused systemically important banks (PostFinance AG, Raiffeisen, and Zürcher Kantonalbank) since January 01, 2019. In keeping with an international standard by FSB, the current proposal is intended to ensure that sufficient capital is available in the event of a crisis, particularly in parent banks and in the Swiss units that perform systemically important functions.
Related Link: Press Release and Related Documents
Comment Due Date: July 12, 2019
Keywords: Europe, Switzerland, Banking, Capital Adequacy Ordinance, Capital Requirements, Proportionality, LTV, Residential Real Estate, D-SIBs, Systemic Risk, Swiss Federal Council
Previous ArticleECB to Conduct Comprehensive Assessment of Five Croatian Banks
ECB published Guideline 2021/975, which amends Guideline ECB/2014/31, on the additional temporary measures relating to Eurosystem refinancing operations and eligibility of collateral.
EIOPA published a report, from the Consultative Expert Group on Digital Ethics, that sets out artificial intelligence governance principles for an ethical and trustworthy artificial intelligence in the insurance sector in EU.
HKMA published the seventh and final issue of the Regtech Watch series, which outlines the three-year roadmap of HKMA to integrate supervisory technology, or suptech, into its processes.
EC launched a targeted consultation to improve transparency and efficiency in the secondary markets for nonperforming loans (NPLs).
BIS, Danmarks Nationalbank, Central Bank of Iceland, Norges Bank, and Sveriges Riksbank launched an Innovation Hub in Stockholm, making this the fifth BIS Innovation Hub Center to be opened in the past two years.
FDITECH, the technology lab of FDIC, announced a tech sprint that is designed to explore new technologies and techniques that would help expand the capabilities of community banks to meet the needs of unbanked individuals and households.
EC released the EU Taxonomy Compass, which visually represents the contents of the EU Taxonomy starting with the EU Taxonomy Climate Delegated Act.
FDIC is seeking comments on a rule to amend the interagency guidelines for real estate lending policies—also known as the Real Estate Lending Standards.
EIOPA published its annual report, which sets out the work done in 2020 and indicates the planned work areas for the coming months.
The ESRB paper that presents an analytical framework that assesses and quantifies the potential impact of a bank failure on the real economy through the lending function.