FSB proposes measures to strengthen Too Big to Fail framework in Switzerland
29 February 2024 Switzerland
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The Financial Stability Board (FSB) has recommended a programme of measures to strengthen the Too Big to Fail (TBTF) framework for large banks in Switzerland.
These steps include strengthening the recovery and resolution framework for Global Systemically-Important Banks (G-SIBs) and reinforcing the supervisory framework, invention powers and resources accorded to the Swiss Financial Market Supervisory Authority (FINMA) for supervision, recovery and resolution.
The FSB advises that although recent reforms to the Swiss deposit insurance system represent an improvement on preceding arrangements, there are still gaps in this framework that the Swiss financial authorities should address.
The FSB arrives at these findings on the back of a peer group review exercise for large banks in the Swiss market.
This concludes that the Swiss authorities have generally made good progress in implementing a TBTF regime for large banks.
It notes that FINMA has introduced requirements for G-SIBs that surpass international minimum capital and liquidity standards and the Swiss regulator has committed further resources to G-SIB supervision under its “proportional and systematic risk-oriented approach”.
The FSB finds that FINMA has also improved the domestic framework for G-SIB recovery and resolution, including resolution powers, cooperation with foreign authorities, and recovery and resolution planning.
While commending these advances, the FSB proposes that the financial authorities in Switizerland should take action to further strengthen the TBTF framework for G-SIBs.
These additional steps are particularly important following the merger of UBS and Credit Suisse into an even larger G-SIB. The failure of this bank could have severe consequences for the Swiss economy and the global financial system, the FSB concludes.
The review notes that the events leading up to the merger of UBS and Credit Suisse provided a test of how the TBTF regime performs in practice. However, the report does not address these developments in detail since their impact has been evaluated more fully in other review documents.
Ryozo Himino, chair of the FSB’s Standing Committee on Standards Implementation (SCSI) that oversaw the preparation of the peer review, says: “The findings and recommendations of the review provide the Swiss authorities with the opportunity to reflect on, and take the necessary steps to further strengthen, their TBTF framework in a changing banking landscape.”
These steps include strengthening the recovery and resolution framework for Global Systemically-Important Banks (G-SIBs) and reinforcing the supervisory framework, invention powers and resources accorded to the Swiss Financial Market Supervisory Authority (FINMA) for supervision, recovery and resolution.
The FSB advises that although recent reforms to the Swiss deposit insurance system represent an improvement on preceding arrangements, there are still gaps in this framework that the Swiss financial authorities should address.
The FSB arrives at these findings on the back of a peer group review exercise for large banks in the Swiss market.
This concludes that the Swiss authorities have generally made good progress in implementing a TBTF regime for large banks.
It notes that FINMA has introduced requirements for G-SIBs that surpass international minimum capital and liquidity standards and the Swiss regulator has committed further resources to G-SIB supervision under its “proportional and systematic risk-oriented approach”.
The FSB finds that FINMA has also improved the domestic framework for G-SIB recovery and resolution, including resolution powers, cooperation with foreign authorities, and recovery and resolution planning.
While commending these advances, the FSB proposes that the financial authorities in Switizerland should take action to further strengthen the TBTF framework for G-SIBs.
These additional steps are particularly important following the merger of UBS and Credit Suisse into an even larger G-SIB. The failure of this bank could have severe consequences for the Swiss economy and the global financial system, the FSB concludes.
The review notes that the events leading up to the merger of UBS and Credit Suisse provided a test of how the TBTF regime performs in practice. However, the report does not address these developments in detail since their impact has been evaluated more fully in other review documents.
Ryozo Himino, chair of the FSB’s Standing Committee on Standards Implementation (SCSI) that oversaw the preparation of the peer review, says: “The findings and recommendations of the review provide the Swiss authorities with the opportunity to reflect on, and take the necessary steps to further strengthen, their TBTF framework in a changing banking landscape.”
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