Reducing the administrative burden on small banks

One of the financial sector’s strengths is its diversity. Small banks and microbanks should be given every chance to continue operating. FINMA is therefore committed to identifying unnecessary obstacles and costs for small banks and eliminating them where possible.

FINMA aims to further simplify the regulation and supervision of smaller banks. Although the principle of proportionality is already applied, FINMA is going a step further and considering the introduction of a simpler regulatory framework for small institutions that rigorously and consistently implements the principle of proportionality. Measures envisaged include dispensing completely with certain regulatory requirements provided an institution voluntarily exceeds a certain number of simplified key indicators. The goal is to tangibly reduce the administrative burden on small institutions without increasing risks for clients and financial stability.

Findings of the key indicator analysis

One routinely criticised issue is the workload involved in implementing and maintaining the system of regulatory indicators. Small institutions often lack the staff and financial resources to maintain the complex, expanded system of regulatory indicators required under Basel III. In addition to the capital ratio, which has been in place for decades, Basel III introduced the leverage ratio (LR), short-term liquidity coverage ratio (LCR) and net stable funding ratio(NSFR). Small banks complain that they are required to administer a complex set of regulatory risk metrics alongside their own risk management based on internal procedures. FINMA is therefore discussing with those affected by the regulations whether calculating these figures can be simplified – or in some cases dispensed with altogether – for small banks.

An initial analysis has shown that certain regulatory structural ratios, such as the LR and NSFR, can be usefully derived from simple balance sheet figures. However, with regard to regulatory indicators more closely geared to risk such as the capital ratio, simpler alternatives cannot be implemented appropriately.

Next steps towards more proportionate regulation

These matters were discussed with representatives of the small banks at the Small Bank symposium on 2 October 2017. FINMA’s efforts to reduce complexity and the workload for institutions in Categories 4 and 5 were well received. The expert panel on small banks which is now to be set up will continue this work. As regards regulatory indicators, the best approach appears to be a regime based on a simplified calculation of certain key indicators for all banks in Categories 4 and 5. If such banks meet conservative requirements, certain components can be omitted. Another issue requiring investigation is the relevance of regulatory indicators to banks’ day-to-day risk management.

FINMA will conduct a limited pilot of the small banks regime at the start of 2018, involving institutions in Categories 4 and 5 that substantially exceed the existing leverage ratio requirements, among others.

 

(From the Annual Report 2017)