Mammoth project enters next phase

Regulatory projects on the scale of the banking stability package are rare. It is by far the most important work in progress in Swiss banking regulation. This is due to the broad scope of the measures proposed by the Federal Council, their potential to affect all banks and their extensive implications for banking operations and the national economy.

In April, the Federal Council adopted the amended Capital Adequacy Ordinance as well as its dispatch on capital requirements for foreign participations held by systemically important banks (measure 15). In other words, while the measures at the ordinance level are largely completed, only a single measure from the entire package has entered the parliamentary discussion stage. This staggered approach is unfortunately typical for the banking stability dossier and makes it difficult to assess the overall economic impact and costs.

At the ordinance level in particular, where topics under discussion included valuation issues and information requirements, the financial sector and large parts of the real economy agreed that the measures originally planned went far beyond what was needed and would have seriously endangered the banks’ international competitiveness. It is pleasing to see that the Federal Council took these concerns on board with regard to some key points.

The Federal Council also decided to postpone improvements to Additional Tier 1 (AT1) capital instruments in order to take account of international developments. The industry agrees with the Federal Council that AT1 instruments, which are designed to absorb losses in a crisis and can thus add considerable value for banks in the stabilisation phase, must be aligned with international norms.

Looking ahead, the focus is on two further milestones for the federal government. Firstly, the consultation on the remaining measures at the act level will start in August. This will involve a large number of topics, notably in the areas of corporate governance, recovery and resolution. We are in favour, in principle, of both introducing a senior managers regime and improving the resolvability of systemically important institutions. However, we continue to see it as very important to ensure the measures are proportionate and sufficiently geared to the banks’ differing circumstances.

A second consultation will concern liquidity issues, specifically the provision of liquidity in a crisis. Especially in view of the Credit Suisse crisis, where liquidity aspects played a key role, we expressly support improvements in this area. Reliable, straightforward access to liquidity from the Swiss National Bank is vital in a digital age in which bank runs can happen very suddenly. We are therefore also expressly in favour of enshrining the public liquidity backstop into law. Decisive factors with regard to all liquidity issues will be achieving a sufficient degree of proportionality and destigmatising state liquidity assistance as much as possible.

Overall, the mammoth banking stability project has reached an interesting stage. Some measures have been decided and will enter into force shortly, but most of the package will only be going into consultation over the summer and will have to pass through the usual parliamentary process over the coming years. The Swiss Bankers Association will continue to lobby intensively for effective, credible and proportionate solutions during the upcoming consultation phase. Our aim remains to strike the right balance between system stability and competitiveness.