Federal Council Increases Capital Requirements for Domestically Focused Systemically Important Banks

efdBern, 21.11.2018 – During its meeting on 21 November 2018, the Federal Council adopted an amendment to the Capital Adequacy Ordinance. Accordingly, the three domestically focused systemically important banks will likewise have to hold so-called gone concern capital for their possible restructuring and resolution from 1 January 2019. The Federal Council will decide next year on the corresponding requirements for the parent entities of the two big banks.

Gone concern capital requirements are intended to ensure that a bank in difficulty can be restructured and wound up in an orderly manner without financial assistance from the state. Following the introduction of gone concern capital requirements for UBS and Credit Suisse back in 2016, these will now apply also to the domestically focused systemically important banks (PostFinance AG, Raiffeisen and Zürcher Kantonalbank). The level of the new requirements reflects the going concern capital requirements already in force today, which ensure the continuation of business activities in the event of major losses. Unlike for the big banks, however, only 40% of the requirements are reflected, as the domestically focused banks are less interconnected internationally.

The revision of the Capital Adequacy Ordinance will provide the opportunity to adjust the provisions on the treatment of systemically important banks’ stakes in their subsidiaries. The previous deduction from capital will be replaced with a risk weighting.

Moreover, group companies that provide the services necessary for the continuation of a bank’s business processes will now be subject to consolidated supervision by FINMA.

In the first half of 2019, the Federal Council will decide which institutions within a financial group have to meet the requirements for systemically important banks and particularly how the gone concern capital requirements for the Swiss units of the big banks should be structured.