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Bad banks - small depositors get preference

The authorities want to avoid a repeat of the Thun savings and loan bank debacle in 1991


Small depositors are set to jump the creditors' queue when banks go bust, under new legislation put forward by the government.

Under the proposed new rules, customers with less than SFr5,000 in their accounts would be given preference over other creditors if their bank goes under.

The move follows the bankruptcy of the savings and loans bank in Thun in 1991 - still in liquidation - in which many customers lost their money.

Draft legislation sent to parliament proposes that during the liquidation process of failed banks, those with up to SFr5,000 on their accounts should be reimbursed before other depositors.

Deposits of up to SFr30,000 will still be guaranteed, as is presently the case.

According to the bill, in the future, clients will be able to protect their bank deposits by means of an obligatory guarantee.

Banks will be able to decide how they want to organise these guarantees, but any collective system must be approved by the Swiss Federal Banking Commission (SFBC).

The government is also calling for the ceiling on guaranteed deposits to be quadrupled to SFr4 billion and that banks back half of this with additional liquid assets.

"Depositors would thus get protection comparable to that in the European Union," said the finance ministry in a statement.


The proposal is just one of a raft of planned reforms to the law on the bankruptcy of banks.

Other measures aim to streamline the process of winding up failed banks by putting the supervision, rehabilitation and liquidation of banks under the sole control of the SFBC.

If a bank goes bust, a rehabilitation plan will be drawn up in consultation with creditors and shareholders, which is subject to approval by the SFBC.

But if no plan is possible, the SFBC will liquidate the bank.

The Swiss Bankers Association backed the government's proposal, saying it encouraged transparency and brought protection of banking depositors up to European standards.

swissinfo with agencies

In brief

Measures to protect the poor when a bank goes bust have been announced by the Swiss cabinet.
Those with up to SFr5,000 on their accounts will be reimbursed before other creditors.
The bankruptcy privilege of SFr30,000 will be extended to all bank deposits.
In the future, clients will be able to protect their assets by means of obligatory credit insurance. The guarantee will reach SFr4 billion - four times more than at present.

end of infobox


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