Featured Product

    FINMA Allows Temporary Exemptions for Banks Amid COVID-19 Crisis

    March 31, 2020

    FINMA published Guidance 02/2020, which provides banks with clarifications on dealing with the COVID-19 credits with federal guarantees within the framework of the capital and liquidity requirements, on temporary exemptions related to the leverage ratio, and on risk-diversification requirements. FINMA is providing information about the expected credit loss (ECL) approach under IFRS 9 and its application in the context of the COVID-19 crisis. FINMA also notified that it supports the liquidity package adopted by the Swiss Federal Council.

    The Swiss government, SNB, and FINMA have already taken various measures to limit the consequences for the economy and the financial system. These measures include COVID-19 ordinance of Swiss Federal Council on joint and several guarantees, the deactivation of the countercyclical capital buffer proposed by SNB and approved by the Swiss Federal Council, and the temporary exemption introduced by FINMA in relation to the leverage ratio. Furthermore, the Swiss Federal Council supported the recommendations made by FINMA and SNB, recommending a prudent distribution policy and welcoming the suspension of share buyback programs.

    • Capital requirements for COVID-19 credits with federal guarantees—Credits granted under the COVID-19 ordinance on joint and several guarantees will be jointly and severally guaranteed by the loan guarantee cooperatives to 100% or 85% of their value respectively and will in turn be guaranteed by the Confederation.
    • Liquidity Coverage Ratio (LCR) calculation taking into account the SNB COVID-19 refinancing facility—For credit facilities granted to companies within the scope of the COVID-19 program, no outflow should be entered for the part covered by the SNB COVID-19 refinancing facility. SNB refinancing facility can be considered as a collateral with Level 1 high-quality liquid assets (HQLA).
    • Exemptions relating to the leverage ratio—The regulatory framework of the leverage ratio provides that all balance sheet items should be backed by capital, regardless of the risk. The leverage ratio thus serves as a complement to the risk-weighted approach. Unusually high cash deposits held at central banks, as in the current situation, can, therefore, lead to a reduction of the leverage ratio without increasing the banks’ risk. FINMA considers this pro-cyclical effect to be counterproductive in the present environment and will, therefore, temporarily allow banks to calculate the leverage ratio without central bank reserves. This measure initially applies until July 01, 2020 and can be extended, if necessary.
    • Exemptions relating to risk diversification—Owing to market turbulence, increasing margin payments to counterparties have been necessary. This can lead to the upper limit of 25% or 100% of Tier 1 capital being exceeded in the context of the risk diversification requirements. To give banks more time to manage such increased positions if needed, the otherwise strict upper limit may be exceeded temporarily.
    • IFRS 9 and COVID-19—FINMA expects the affected banks to continue to observe the requirements of IFRS 9. However, FINMA calls on the affected banks to take into account the document published by the IASB on March 27, 2020 related to IFRS 9 and COVID-19. FINMA further notes that the support measures taken by authorities and governments around the world in connection with COVID-19 are to be incorporated in their forward-looking considerations of expected credit loss, or ECL, estimates.

    In this environment, a prudent distribution policy is a preventive measure to ensure that the current robustness remains, even in the event of an extended economic downturn. FINMA welcomed the decision of all Swiss financial institutions to suspend their share buyback programs. Moreover, FINMA reiterates that the capital freed up through relief in the leverage ratio calculation is not to be distributed. For banks whose shareholders approved, after March 25, 2020, dividends or other similar distributions related to 2019, or who plan to seek such shareholder approval, the capital relief will be reduced by the amount of the said distributions.

     

    Related Links

    Keywords: Europe, Switzerland, Banking, COVID-19, LCR, Capital Requirements, HQLA, Leverage Ratio, Liquidity, ECL, IFRS 9, Risk Diversification, CCyB, Tier 1 Capital, Refinancing Facility, SNB, Swiss Federal Council, FINMA

    Featured Experts
    Related Articles
    News

    EBA Analyzes Impact of Unwind Mechanism of Liquidity Coverage Ratio

    EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.

    November 19, 2020 WebPage Regulatory News
    News

    ECB Outlines Views on Possible Changes to AnaCredit Rule and TLTROs

    In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.

    November 19, 2020 WebPage Regulatory News
    News

    IASB Begins First Phase of Post-Implementation Review of IFRS 9

    IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.

    November 18, 2020 WebPage Regulatory News
    News

    FSB Report Examines Progress in Resolvability of Systemic Institutions

    FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.

    November 18, 2020 WebPage Regulatory News
    News

    EBA Benchmarks National Insolvency Frameworks Across EU

    EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.

    November 18, 2020 WebPage Regulatory News
    News

    FSB Reports Assess Impact of Pandemic on Financial Stability

    FSB published a letter from its Chair Randal K. Quarles, along with two reports exploring various aspects of the market turmoil resulting from the COVID-19 event.

    November 17, 2020 WebPage Regulatory News
    News

    RBNZ Consults on Implementation of Capital Review Changes

    RBNZ launched a consultation on the details for implementing the final Capital Review decisions announced in December 2019.

    November 17, 2020 WebPage Regulatory News
    News

    IASB Announces Andreas Barckow as the New Chair from July 2021

    The Trustees of the IFRS Foundation, which are responsible for the governance and oversight of IASB, have announced the appointment of Dr. Andreas Barckow as the IASB Chair, effective July 2021.

    November 17, 2020 WebPage Regulatory News
    News

    HKMA Consults on Capital Rules for Bank Equity Investments in Funds

    HKMA issued a letter to consult the banking industry on a full set of proposed draft amendments to the Banking (Capital) Rules for implementing the Basel standard on capital requirements for banks’ equity investments in funds in Hong Kong.

    November 17, 2020 WebPage Regulatory News
    News

    ESRB Supports Extension of Macro-Prudential Measure by Swedish FSA

    ESRB published an opinion assessing the decision of Swedish Financial Supervisory Authority (FSA) to extend the application period of a stricter measure for residential mortgage lending, in accordance with Article 458 of the Capital Requirements Regulation (CRR).

    November 17, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 6153