FINMA published a report that provides detailed assessment of the recovery and resolution plans of the systemically important Swiss institutions. FINMA has approved the recovery plans of all five systemically important Swiss banks. In addition, the two large Swiss banks were required to produce effective emergency plans for their Swiss operations by the end of 2019. FINMA views the Swiss emergency plans of Credit Suisse and UBS as effective and approves them. However, the emergency plans of the three domestic systemically important banks—PostFinance, Raiffeisen, and Zürcher Kantonalbank—do not meet the statutory requirements yet.
Following the financial crisis of 2007-2008, FINMA promulgated special rules for the stabilization, restructuring, or liquidation of troubled institutions. The rules require higher capital and liquidity buffers as well as plans for recovery and resolution. There are four main instruments in this context:
- Recovery plan. The systemically important bank or financial market infrastructure sets out how it would stabilize itself in a crisis. This plan requires the approval of FINMA.
- Swiss emergency plan. In this plan, a systemically important bank details how it would ensure uninterrupted continuity of its systemically important functions in Switzerland (particularly access to deposits and payments) in crisis. FINMA must review this plan and evaluate whether it is ready to be implemented if necessary.
- Resolution plan. FINMA produces a global resolution plan for Credit Suisse and UBS. This indicates how the entire global group would be recapitalized, restructured, and/or (partially) liquidated in a crisis. Resolution plans are also required for the domestic systemically important banks and systemic financial market infrastructures. FINMA assesses the resolvability of an institution on the basis of whether the preparations of the institution are sufficient to successfully implement the plan if necessary.
- Rebates. FINMA can grant UBS and Credit Suisse rebates on certain components of the capital requirements if they have made significant improvements in their global resolvability. In 2019, Credit Suisse and UBS utilized 40% and 42.5% of their maximum rebate potential, respectively.
FINMA regards the emergency plan of Credit Suisse to be effective. UBS has been also judged by FINMA to have met the requirements for an effective emergency plan, with the qualification that certain joint and several liabilities remain excessive. The three domestic systemically important banks also submitted an emergency plan, but were at different stages of implementation at the end of 2019. None of the plans has been deemed to be effective yet. At Zürcher Kantonalbank, there is a plausible plan for how the capital and liquidity resources required in the event of a crisis can be built up further. Raiffeisen and PostFinance do not yet have plausible plans for accumulating the necessary gone-concern funds for recapitalization in a crisis. All three domestic banks have work underway to develop an effective emergency plan. The domestic systemically important banks have little or no foreign business and their resolution plans relate solely to the systemically important functions in Switzerland. They are, therefore, largely interchangeable with the emergency plans.
FINMA is, however, required to draw up a global resolution plan for the global systemically important banks: Credit Suisse and UBS. Unlike the emergency plan, which relates purely to the systemically important functions of banks in Switzerland, this global resolution plan covers the entire banking group worldwide. FINMA concluded that both the banks already took important preparatory steps and made considerable progress with respect to their global resolvability. FINMA believes the requirements for structural disentanglement are now fulfilled. For instance, the two banks created holding structures and Swiss subsidiaries to facilitate this disentanglement. In other areas, particularly with regard to funding in resolution, further implementation work still needs to be done.
Keywords: Europe, Switzerland, Banking, Too-Big-To-Fail, Rebates, Recovery and Resolution, G-SIBs, D-SIBs, Systemic Risk, Resolution Framework, FINMA
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.
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