Fritz Zurbrügg, Member of the Governing Board of SNB, at a news conference in Berne, presented the key findings from 2019 Financial Stability Report by SNB. He outlined the assessment of the situation at the domestically focused banks and discussed the capital position and resolution planning of the Swiss big banks—Credit Suisse and UBS.
Mr. Zurbrügg highlighted that the global economic and financial market conditions that the Credit Suisse and UBS are facing have become slightly more difficult since the assessment this time last year. Nevertheless, further progress has been achieved in implementing the revised too-big-to-fail regulations. This holds true for both areas covered by the regulations—resilience and resolution. Regarding resilience, the Swiss big banks, Credit Suisse and UBS, have slightly improved their capital situation and are now close to full compliance with the look-through going-concern capital requirements on a consolidated basis. The current calibration of these regulatory requirements is necessary to ensure adequate resilience at both banks. The market’s assessment of the two big banks’ resilience is generally similar to that of the previous year. In the area of resolution, the Swiss big banks have improved their gone-concern loss-absorbing capacity since last year’s Financial Stability Report.
He noted that the Federal Council has drawn up requirements on big banks’ loss-absorbing capacity at the level of individual group entities and, in early April, initiated a consultation on a corresponding amendment to the Capital Adequacy Ordinance. SNB supports the proposed amendments to the Capital Adequacy Ordinance. Work is also underway with regard to liquidity in a crisis, known as "funding in resolution." It is aimed to ensure that the big banks have sufficient liquidity during preparations for and in the phase immediately after resolution. To this end, FINMA is drawing up resolution funding plans in line with the international standards. In cooperation with SNB and the two banks concerned, it is assessing the big banks’ liquidity needs under possible crisis scenarios. Finally, both big banks are in the process of finalizing their Swiss emergency plans, in which they have to demonstrate that they would be able to maintain their systemically important functions without interruption in a crisis. According to FINMA, further efforts by the big banks are required to ensure their plans are finalized by the statutory deadline of end-2019.
Mr. Zurbrügg mentioned that the mortgage and real estate markets remain the biggest source of risk for the domestically focused banks. Imbalances persisted in these markets in 2018. Banks’ current lending policy in the residential investment property segment should be viewed as particularly risky. Since many of the loans also carry considerable loan-to-value (LTV) risk, they are particularly vulnerable in a scenario involving a correction in real estate prices and a sharp increase in interest rates. Given the risks, SNB continues to take the view that targeted mortgage loan-related measures are necessary in the residential investment property segment. SNB supports the proposal of the Federal Council to raise capital requirements for high-LTV loans in this segment. Specifically, this would involve increasing the risk-weights for loan tranches exceeding two-third of the residential investment property’s value.
SNB welcomes the Swiss Bankers Association’s readiness to consider a revision to the self-regulation guidelines as an alternative to the Federal Council’s proposal. Such a revision would reduce the LTV ratio and shorten the amortization period for new loans financing residential investment property. As per SNB assessment, the domestically focused banks hold sufficient capital to cover their risk exposure. SNB stress tests continue to suggest that most of these banks have a sound capital base, enabling them to cover any losses they might incur under adverse scenarios. The proposed measures should help to ensure that the level of risks incurred in the mortgage market remains bearable in the future. For its part, SNB will continue to closely monitor developments on the mortgage and real estate markets and will regularly reassess the need for an adjustment of the countercyclical capital buffer (CCyB).
Keywords: Europe, Switzerland, Banking, Securities, Financial Stability, Too-Big-To-Fail, Capital Adequacy Ordinance, Loss-Absorbing Capacity, CCyB, Credit Risk, Stress Testing, Resolution Planning, SNB
The Australian Prudential Regulation Authority (APRA) has published the findings of its latest climate risk self-assessment survey conducted across the banking, insurance, and superannuation industries.
The French Prudential Supervisory Authority (ACPR) published a notice related to the methods for calculating and publishing prudential ratios under the Capital Requirements Directive (CRD IV) and the minimum requirement for own funds and eligible liabilities (MREL).
The Financial Stability Institute (FSI) of the Bank for International Settlements recently published a paper proposing a framework for classifying financial stability regulation as either entity-based or activity-based.
The European Insurance and Occupational Pension Authority (EIOPA) published the risk dashboard based on Solvency II data and the final version of the application guidance on climate change materiality assessments and climate change scenarios in the Own Risk and Solvency Assessment (ORSA).
The European Banking Authority (EBA) and the European Central Bank (ECB) published their responses to the consultations of the International Sustainability Standards Board (ISSB) and the European Financial Reporting Advisory Group (EFRAG) on sustainability-related disclosure standards.
A Consultative Group on Risk Management (CGRM) at the Bank for International Settlements (BIS) published a report that examines incorporation of climate risks into the international reserve management framework.
The European Banking Authority (EBA) published the final guidelines on liquidity requirements exemption for investment firms, updated version of its 5.2 filing rules document for supervisory reporting, and Single Rulebook Question and Answer (Q&A) updates in July 2022.
The European Insurance and Occupational Pensions Authority (EIOPA) published Version 2.8.0 of the Solvency II data point model (DPM) and XBRL taxonomy.
The European Union published, in the Official Journal of the European Union, an opinion from the European Economic and Social Committee (EESC); the opinion is on the proposal for a regulation to amend the Capital Requirements Regulation (CRR).
HM Treasury published a draft statutory instrument titled “The Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2022,” along with the related explanatory memorandum and impact assessment.