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December 20, 2017

FINMA revised Circular 2019/1 on banking risk diversification. This revision was necessitated by changes adopted by the Federal Council to the Capital Adequacy Ordinance, which contains rules on banks and securities dealers’ capital bases and risk diversification. The changes will enter into force on January 01, 2019.

The Federal Council adopted a revision of the Capital Adequacy Ordinance on November 22, 2017. These rules, which implement Basel III standards, impose a maximum limit on the size of individual loans, thus avoiding cases in which banks would fall into severe financial difficulties because of a large loan default. FINMA revised its Circular 2019/1 to reflect these changes, following completion of the consultation process. Taking note of the concerns expressed by the respondents to the consultation, FINMA has included several relaxations for smaller institutions, one of which is that the current exemption for domestic residential mortgage lending will continue to apply. Additionally, rules concerning banks in general will be simplified so that the specifics of Lombard and repo transactions can be recognized.

 

Related Link: Press Release

Effective Date: January 01, 2019

Keywords: Europe, Switzerland, Banking, Credit Risk, Leverage Ratio, Capital Adequacy Ordinance, FINMA

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