Basel III Final: megaproject on the final straight
The Federal Council’s decision today on the implementation of “Basel III Final” in Switzerland marks a key milestone in banking regulation. The Swiss Bankers Association (SBA) has campaigned intensively in recent years for an effective, pragmatic and reasonable implementation.
In its press release today, the Federal Council provides information on the implementation in Switzerland of the revised capital adequacy requirements (“Basel III Final”) issued by the Basel Committee on Banking Supervision (BCBS). These are expected to enter into force at the start of 2025.
The largest banking regulation project of recent years has thus come to fruition. The main purposes of the reform package are to make capital adequacy regulations more risk-sensitive and to introduce a new minimum capital threshold where internal models are used. The SBA supports the newly revised Capital Adequacy Ordinance (CAO). The revision will make a substantial contribution to improving system stability. At the same time, however, implementation within individual banks will result in significant costs for them.
Basel III Final is a strategic priority for the SBA. Accordingly, the Association has been heavily involved in the work done on the topic ever since the revised Basel standards were published at the end of 2017. For instance, it was represented in the national working group led jointly by the State Secretariat for International Finance (SIF) and the Swiss Financial Market Supervisory Authority (FINMA). It set out its position in detail as part of the public consultation last year.
Despite the high complexity and in some cases controversial impact, the banking industry has campaigned resolutely for an implementation that is not only effective and credible but also pragmatic and proportionate. Its ability to present a united front proved to be a vital success factor.
In mortgage market regulation especially, the SBA succeeded in preventing unjustified market intervention, in particular the imposition of a rigid affordability calculation and the excessive restriction of eligible collateral (especially concerning pension assets). Overall, a solution has been arrived at that makes capital underpinning for mortgage loans more dependent on the risks involved, which is in line with the BCBS standards. In addition, the tried-and-tested requirements for assessing and valuing loans secured against property have been made more differentiated. The SBA will complement the CAO adopted by the Federal Council with amendments to its self-regulation in spring 2024.
The SIF, FINMA, the Swiss National Bank (SNB) and the SBA agree that the Swiss implementation should be in line with the Basel Committee’s international standards. In the interests of competitiveness, it is now very important to ensure that the Swiss design is aligned with those of other comparable financial centres in the EU, the US and the UK in terms of both content and timing. The SBA assumes that the Federal Council is reserving the right to postpone implementation in the event of delays in other countries.