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 European Commission (EC) published the Delegated Regulation 2022/786 with regard to the liquidity coverage requirements for credit institutions under the Capital Requirements Regulation (CRR).
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying the criteria to identify shadow banking entities for the purposes of reporting large exposures.
The European Insurance and Occupational Pensions Authority (EIOPA) published a report assessing insurers' exposure to physical climate change risks
The Network for Greening the Financial System (NGFS) published two reports to aid central banks and regulators in their oversight of the financial sector and in their central bank operations
The European Commission (EC) published the results of a public consultation, held in October 2021, on the review of the Web Accessibility Directive.
The Monetary Authority of Singapore (MAS) and the SC-STS are jointly consulting, until June 10, 2022, on setting adjustment spreads for the conversion of legacy SOR contracts to SORA reference rate.
The Office of the Superintendent of Financial Institutions (OSFI) published the strategic plan for 2022-2025 and the departmental plan for 2022-23.
The European Banking Authority (EBA) is consulting, until August 31, 2022, on the draft implementing technical standards specifying requirements for the information that sellers of non-performing loans (NPLs) shall provide to prospective buyers.
The European Council and the Parliament reached an agreement on the revised Directive on security of network and information systems (NIS2 Directive).
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying information that crowdfunding service providers shall provide to investors on the calculation of credit scores and prices of crowdfunding offers.