General Information & Client Service
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
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

Related Insights
News

US Agencies Extend Consultation Period for the Proposed SA-CCR

US Agencies (FDIC, FED, and OCC) extended the comment period for a proposed rule to update their standards for how firms measure counterparty credit risk posed by derivative contracts.

February 18, 2019 WebPage Regulatory News
News

FED Extends Consultation Period for Stress Testing Rule

FED has published in the Federal Register a notice proposing amendments to the company run and supervisory stress test rules.

February 15, 2019 WebPage Regulatory News
News

EBA Single Rulebook Q&A: Third Update for February 2019

EBA published answers to two questions under the Single Rulebook question and answer (Q&A) updates for this week.

February 15, 2019 WebPage Regulatory News
News

FSB Report Examines Financial Stability Implications of Fintech

FSB published a report that assesses fintech-related market developments and their potential implications for financial stability.

February 14, 2019 WebPage Regulatory News
News

US Agencies Amend Regulatory Capital Rule to Allow Phase-In for CECL

US Agencies (FDIC, FED, and OCC) adopted the final rule to address changes to credit loss accounting under the U.S. generally accepted accounting principles; this includes banking organizations’ implementation of the current expected credit losses (CECL) methodology.

February 14, 2019 WebPage Regulatory News
News

FASB Proposes Taxonomy Improvements for the Credit Losses Standard

FASB proposed the taxonomy improvements for the proposed Accounting Standards Updates on Targeted Transition Relief for Topic 326 (Financial Instruments—Credit Losses) and Topic 805 (on Business Combinations—Revenue from Contracts with Customers).

February 14, 2019 WebPage Regulatory News
News

SRB Publishes Framework for Performing Valuations in Resolution

SRB published its framework for performing valuations in resolution. The framework provides independent valuers and the general public with an indication of the expectations of SRB on the principles and methodologies for valuation reports, as set out in the legal framework.

February 14, 2019 WebPage Regulatory News
News

FED Issues Correction in Historical Dataset in its 2019 Stress Tests

FED identified an error in the historical dataset used in its 2019 stress tests and issued a correction.

February 13, 2019 WebPage Regulatory News
News

OCC Consults on Company-Run Stress Test Requirements for Banks

OCC proposed amendments to its company-run stress testing requirements for national banks and Federal savings associations, consistent with section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection (EGRRCP) Act.

February 12, 2019 WebPage Regulatory News
News

CFTC Extends Comment Periods for Trade Execution Requirement Proposals

CFTC announced that it is extending comment period for the proposed amendments related to the regulations on swap execution facilities (SEF) and trade execution requirement.

February 12, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2610