Switzerland outlines stricter too-big-to-fail banking rules

Federal Council plans stricter too-big-to-fail rules after CS debacle Keystone-SDA

The Swiss government wants to tighten up bank regulation with stricter capital adequacy requirements, more powers for the financial supervisor and the nomination of bank executives to be held accountable.

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On Friday, the Federal Council adopted the first key measures and opened the first of several consultations. In doing so, it drew on its own report on banking stability from April 2024 and the work of the Parliamentary Oversight Committee on the Credit Suisse emergency merger.

Stricter capital requirements are planned for systemically important banks with subsidiaries abroad – namely UBS. In future, 100% of the book value of foreign subsidiaries will be deducted from the parent company’s hard equity. Today, only partial capitalisation is required.

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Strengthen equity

Losses in the value of these subsidiaries should therefore no longer affect the hard equity of the parent company in Switzerland. According to the Federal Council, this will strengthen the equity of the parent company in Switzerland. The government intends to refrain from a general increase in equity capital.

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The Financial Market Supervisory Authority (Finma) is to be given more supervisory powers and the authority to order measures earlier and more effectively. If a bank does not behave correctly, the supervisory authority should be able to impose fines.

The Federal Council wants all banks to have to name responsible parties in future. If misconduct occurs, this can have an impact on variable remuneration. If responsibility is clearly assigned, targeted sanctions could be imposed, the Federal Council writes in its decision.

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Bonuses targeted

There is talk of cancelling or reducing bonuses that have not yet been paid out, reclaiming variable remuneration or measures imposed by Finma, such as the withdrawal of a guarantee or a professional ban. The banks are to define who is responsible for what within the bank in a document.

The Federal Council wants to oblige the four banks that are currently systemically important – UBS, Postfinance, Raiffeisen and the Zurich Cantonal Bank – to set blocking periods for at least part of the bonuses. In the event of misconduct, bonuses that have been awarded but not yet transferred must be reduced or cancelled.

They must also be able to reclaim variable remuneration that has already been paid. All banks must adhere to minimum principles enshrined in law when it comes to variable remuneration. In the event of mismanagement by senior executives, the bank should hold them accountable with remuneration measures.

The Federal Council is still not in favour of banning bonuses. This is because without this variable remuneration, higher fixed salaries could be paid. These in turn would increase the fixed costs of the financial institutions. This would make it more difficult to reduce a bank’s costs in times of crisis, the Federal Council points out.

Consultations planned

The government has already opened a first consultation on the Capital Adequacy Ordinance on Friday until September 29. It wants stricter provisions for the valuation of assets – such as software or deferred tax assets – that are not sufficiently valuable in a crisis. It also wants to adjust the liquidity requirements.

In future, banks will be required to submit information and scenarios, including analyses. Based on the documents, Finma and the responsible authorities should be able to assess the banks’ situation in a liquidity crisis at any time. These provisions are to apply from January 2027 at the earliest.

The Federal Council intends to open the consultation on capital adequacy requirements for foreign subsidiaries in the autumn. It is planning a further consultation on the other regulations in the first half of 2026, with a further consultation on amending the Liquidity Ordinance to be launched in the first half of 2026.

Translated from German by DeepL/mga

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