Swiss Federal Council Consults to Amend Capital Adequacy Ordinance
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
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Blake Coules
Across 35 years in banking, Blake has gained deep insights into the inner working of this sector. Over the last two decades, Blake has been an Operating Committee member, leading teams and executing strategies in Credit and Enterprise Risk as well as Line of Business. His focus over this time has been primarily Commercial/Corporate with particular emphasis on CRE. Blake has spent most of his career with large and mid-size banks. Blake joined Moody’s Analytics in 2021 after leading the transformation of the credit approval and reporting process at a $25 billion bank.
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Previous Article
Thomas Jordan of SNB Discusses Regulatory Stance on Digital MoneyRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
