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

    US Agencies Issue Several Regulatory and Reporting Updates

    The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.

    January 04, 2023 WebPage Regulatory News
    News

    ECB Issues Multiple Reports and Regulatory Updates for Banks

    The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.

    January 01, 2023 WebPage Regulatory News
    News

    HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements

    The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.

    December 30, 2022 WebPage Regulatory News
    News

    EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR

    The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.

    December 29, 2022 WebPage Regulatory News
    News

    CBIRC Revises Measures on Corporate Governance Supervision

    The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.

    December 29, 2022 WebPage Regulatory News
    News

    HKMA Publications Address Sustainability Issues in Financial Sector

    The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.

    December 23, 2022 WebPage Regulatory News
    News

    EBA Updates Address Basel and NPL Requirements for Banks

    The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.

    December 22, 2022 WebPage Regulatory News
    News

    ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite

    The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.

    December 22, 2022 WebPage Regulatory News
    News

    FCA Sets up ESG Committee, Imposes Penalties, and Issues Other Updates

    The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers.

    December 20, 2022 WebPage Regulatory News
    News

    FSB Reports Assess NBFI Sector and Progress on LIBOR Transition

    The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.

    December 20, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8697