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

    APRA Decides to Standardize Submission Date for Quarterly Reporting

    APRA announced the standardization of quarterly reporting due dates for authorized deposit-taking institutions.

    May 11, 2021 WebPage Regulatory News
    News

    Bundesbank Publishes Supporting Documentation for Reporting by Banks

    Bundesbank published a list of "EntryPoints" that are accepted in its reporting system; the list provides taxonomy version and name of the module against each EntryPoint.

    May 11, 2021 WebPage Regulatory News
    News

    ECB Working Group Publishes Recommendations on EURIBOR Fallbacks

    The private sector working group of ECB on euro risk-free rates published the recommendations to address events that would trigger fallbacks in the Euro Interbank Offered Rate (EURIBOR)-related contracts, along with the €STR-based EURIBOR fallback rates (rates that could be used if a fallback is triggered).

    May 11, 2021 WebPage Regulatory News
    News

    EBA Publishes Phase 1 of Reporting Framework 3.1

    EBA published the phase 1 of its reporting framework 3.1, with the technical package covering the new reporting requirements for investment firms (under the implementing technical standards on investment firms reporting).

    May 10, 2021 WebPage Regulatory News
    News

    APRA to Finalize Capital Adequacy Standard Revisions by January 2022

    Asia Pacific Australia Banking APS 111 Capital Adequacy Regulatory Capital Basel RBNZ APRA

    May 10, 2021 WebPage Regulatory News
    News

    ESMA Issues Guidelines on Outsourcing to Cloud Service Providers

    ESMA published the final guidelines on outsourcing to cloud service providers.

    May 10, 2021 WebPage Regulatory News
    News

    EBA Publishes Data on Deposit Guarantee Schemes

    EBA published annual data for two key concepts and indicators in the Deposit Guarantee Schemes (DGS) Directive—available financial means and covered deposits.

    May 10, 2021 WebPage Regulatory News
    News

    OSFI Sets Out Plan for Future Guidance on Managing Technology Risk

    OSFI has set out the schedule for release of draft guidance on the management of technology risks by federally regulated financial institutions and private pension plans.

    May 10, 2021 WebPage Regulatory News
    News

    MAS Updates Housing Loan Rules, Proposes Corporate Governance Guidance

    MAS updated rules for new housing loans by banks and finance companies.

    May 10, 2021 WebPage Regulatory News
    News

    HKMA Publishes Guideline on Sustainable Finance Grant Scheme

    HKMA published a statement on the 100% Personal Loan Guarantee Scheme and a guideline on the Green and Sustainable Finance Grant Scheme (GSF Grant Scheme) as announced in the 2021-22 Budget.

    May 09, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6959