The Swiss National Bank (SNB) updated the reporting form (Form ARIS 5.11) and related documentation for counterparty solvency risk in the interbank sector. The form records the ten or twenty largest claims and liability positions vis-à-vis other banks or bank groups in Switzerland and abroad and will be valid from December 31, 2021. The accompanying documentation explain the recent changes to the form, which has quarterly reporting frequency and must be submitted by all banks and banking groups, except foreign bank branches, in Switzerland. SNB also announced that the countercyclical capital buffer (CCyB) for banks is to be set at 2.5% of the risk-weighted exposures secured by residential property, with expected compliance deadline of September 30, 2022 for the increased CCyB requirements.
After consultation with the Swiss Financial Market Supervisory Authority (FINMA), SNB had submitted a proposal to the Federal Council, requesting that the CCyB be reactivated. The Federal Council approved the SNB proposal on January 26, 2022. The sectoral CCyB buffer had been deactivated from its current rate of 2% of risk-weighted exposures in March 2020, against the backdrop of the coronavirus pandemic, as proposed by SNB then. This deactivation was part of a package of measures by the federal government, SNB, and FINMA to give banks maximum latitude for lending to companies. Now, the pandemic-related uncertainty with regard to companies’ access to credit has decreased significantly and there exist no signs of companies experiencing a credit tightening. However, the vulnerabilities on the mortgage and residential real estate markets have increased since the CCyB was deactivated. Both the volume of mortgage lending and prices for residential property have risen more strongly than can be explained by fundamental factors such as rents and income. Affordability risks have remained persistently high too and in the residential investment property segment they have continued to rise. A strong correction on these markets would have a noticeable impact on the banking sector and the Swiss economy. Thus, SNB has concluded that a reactivation of the sectoral CCyB is necessary. The reactivation of the sectoral CCyB will lead to a temporary rise in the capital requirements for mortgage loans on residential property in Switzerland but it will help to limit the negative consequences of a strong correction on the Swiss mortgage and residential real estate markets for the banking sector and the Swiss economy.
Keywords: Europe, Switzerland, Banking, Systemic Risk, Counterparty Credit Risk, Large Exposures, Credit Risk, Basel, Reporting, CCyB, SNB
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