Switzerland to introduce public liquidity backstop for big banks
As planned, Switzerland is to have a new crisis instrument for systemically important banks.
On Wednesday, the government adopted a public liquidity guarantee mechanism, which it had used as an emergency measure for Credit Suisse. On March 16, the government laid the foundations for a public liquidity backstop (PLB) in connection with the acquisition of Credit Suisse by UBS.
This mechanism comes into play when a bank no longer has enough of its own liquidity to meet its financial obligations. It is also triggered if the institution can no longer benefit from extraordinary aid loans granted by the central bank due to insufficient collateral.
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The draft was well received in consultation, the government noted in a press release on Wednesday. In response to a widely expressed demand, the PLB will be supplemented by a lump sum that the big banks will have to pay to the government in advance. It will be required in all cases. The banks concerned will also have to pay premiums and interest.
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