Featured Product

    Fritz Zurbrügg of SNB on Mitigation of Systemic Risk in Switzerland

    September 10, 2018

    BIS published a speech by Fritz Zurbrügg of SNB, wherein he discussed the causes and effects of “too big to fail” (TBTF) and how it manifests itself in Switzerland, before moving on to discuss the reasons the banking regulation before the crisis did not sufficiently address the risks posed by TBTF or systemically important banks. He also described the country’s implementation status regarding the wide-ranging regulatory measures taken at international and national levels to resolve TBTF. He believes that the Swiss big banks and the Swiss banking system are much more “weatherproof” today than they were ten years ago.

    As per Mr. Zurbrügg, in Switzerland, the response was quick, targeted, and cost-effective. The regulatory amendments strengthened the resilience of banks and introduced measures to ensure that even a systemically important bank can exit the market in an orderly way in the event of a crisis. Although many of the planned measures have already been implemented, the conditions for resolving TBTF in Switzerland will be in place only after the agreed measures have been fully implemented. With regard to the regulatory response to the TBTF issue, he explained that Swiss regulations in this area rest on two complementary pillars with special requirements for systemically important banks. The first pillar defines measures to strengthen the resilience of these banks and thus reduce the likelihood of a systemically important bank getting into financial distress. The second pillar of the TBTF regulations comes into play in the event that a systemically important bank gets into financial distress, despite increased resilience. It is intended to ensure that a bank is resolvable. For this purpose, the regulations stipulate requirements for resolution planning. By the end of 2019, systemically important banks in Switzerland must prepare “emergency plans” to be able to continue their systemically important functions in Switzerland without interruption in the event of a crisis. The second pillar also specifies requirements for loss-absorbing capacity. Banks can use “bail-in” instruments for this purpose. These are essentially debt securities that can be converted into equity or written down in the event of impending insolvency. 

    Regarding the status of the fulfillment of these requirements, the latest Financial Stability Report, which was published in June, stated that implementation is already well under way. In terms of the first pillar of the regulations—both big banks are on track. They fully meet the requirements for risk-weighted capital that will apply from the end of 2019. As far as the second pillar—resolution—is concerned, the two big banks (UBS and Credit Suisse) have made further progress. They already meet some of the requirements in full, namely those related to the gone-concern loss-absorbing capacity. However, more progress needs to be made in increasing resilience with regard to the leverage ratio. The work that still needs to be done under the second pillar should not be underestimated. To ensure that a bank can be resolved in an emergency, further progress is needed, particularly in three areas. First, resolution funding plans need to be drawn up, which FINMA, as the competent authority, is in the process of doing. Second, loss-absorbing capacity must be ensured at the level of each individual entity within the big banks. Previously, the focus was on loss-absorbing capacity at consolidated group level. Third, both big banks must further reduce the financial and operational dependencies within the group. In addition, the two big banks need to finalize the required emergency plans for Swiss institutions with systemically important functions by the end of 2019.

    He concluded: “We are confident that full implementation of the Swiss ‘too big to fail’ regulations will reduce the false incentives that underlie the issue and create the necessary conditions for resolving the issue here in Switzerland. The state should no longer be obliged to use government funds to bail out a bank.”

     

    Related Link: Speech

    Keywords: Europe, Switzerland, Banking, TBTF, Systemic Risk, Resolution Planning, TLAC, Leverage Ratio, SNB, BIS

    Featured Experts
    Related Articles
    News

    EC Adopts Financial Reporting Changes Arising from Benchmark Reforms

    EC published Regulation 2021/25 that addresses amendments related to the financial reporting consequences of replacement of the existing interest rate benchmarks with alternative reference rates.

    January 14, 2021 WebPage Regulatory News
    News

    BIS Bulletin Examines Key Elements of Policy Response to Cyber Risk

    BIS published a bulletin, or a note, that examines the cyber threat landscape in the context of the pandemic and discusses policies to reduce risks to financial stability.

    January 14, 2021 WebPage Regulatory News
    News

    HMT Updates List of Post-Brexit Equivalence Decisions in UK

    HM Treasury, also known as HMT, has updated the table containing the list of the equivalence decisions that came into effect in UK at the end of the transition period of its withdrawal from EU.

    January 14, 2021 WebPage Regulatory News
    News

    EBA Issues Erratum for Technical Package on Reporting Framework 3.0

    EBA published an erratum for technical package on phase 1 of the reporting framework 3.0.

    January 14, 2021 WebPage Regulatory News
    News

    APRA Publishes FAQ on Measurement of Credit Risk Weighted Assets

    APRA updated a frequently asked question (FAQ), for authorized deposit-taking institutions, on the measurement of credit risk weighted assets.

    January 14, 2021 WebPage Regulatory News
    News

    EBA Publishes Risk Dashboard for Third Quarter of 2020

    EBA published the quarterly risk dashboard, along with the results of the Risk Assessment Questionnaire survey among 60 banks and 15 market analysts.

    January 13, 2021 WebPage Regulatory News
    News

    ECB Analysis Shows Privacy as Biggest Concern in Use of Digital Euro

    ECB concluded the public consultation on the introduction of a digital euro in EU.

    January 13, 2021 WebPage Regulatory News
    News

    ECB Finalizes Guide on Supervisory Approach to Bank Consolidation

    ECB published a guide that sets out the supervisory approach to consolidation in the banking sector.

    January 12, 2021 WebPage Regulatory News
    News

    SRB Chair Outlines Work Priorities for 2021

    The SRB Chair Elke König published an article setting out work priorities for 2021.

    January 11, 2021 WebPage Regulatory News
    News

    FDIC Selects Companies to Compete in Final Phase of Tech Sprint

    FDIC has selected 11 technology companies—including BearingPoint, Fed Reporter, Inc, and S&P Global Market Intelligence, LLC—for inclusion in the third and final phase of the rapid prototyping competition.

    January 11, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6417