Every year FINMA assesses the progress made in recovery and resolution planning by the systemically important banks Credit Suisse, UBS, PostFinance, Raiffeisen and Zürcher Kantonalbank and the systemically important financial market infrastructures (FMIs) SIX x-clear and SIX SIS. It has published a report since 2020 (Resolution report 2020 and Resolution report 2021) and is again reporting here in depth on the status of progress in 2022. Unless otherwise stated, the cut-off date for the evaluation is the end of 2021.
The recovery plans of the central counterparty SIX x-clear and the central securities depository SIX SIS were approved by FINMA in 2021 for the first time. However, the two financial market infrastructures still have a number of requirements they need to meet.
Thanks to further operational improvements, the two large Swiss banks continue to make progress towards achieving global resolvability. The main improvements related to operational disentanglement, the provision of liquidity and capital information in the event of a crisis and the preparation of post bail-in restructuring.
FINMA’s strategic aim is to complete the “too big to fail” planning by 2024 the latest. The authorities, banks and FMIs all have further work to do to meet this goal.
FINMA evaluates the following main components of the “too big to fail” work every year:
Recovery plan: This sets out the steps the systemically important bank or FMI would take to stabilise itself in a crisis. The plan requires FINMA’s approval.
Swiss emergency plan: In this plan the systemically important bank details how it would ensure uninterrupted continuity of its systemically important functions in Switzerland, consisting primarily of access to deposits and payments, in a crisis. FINMA reviews these plans on a risk-oriented basis and assesses whether they are ready to be implemented or not.
Resolution plan: FINMA produces a global resolution plan for Credit Suisse and UBS. This lays out how the entire global banking group would be recapitalised, restructured and/or liquidated, or partially liquidated, in a crisis. FINMA is also required to produce suitable resolution plans for the domestic systemically important banks and systemically important FMIs. It also evaluates the resolvability of the large banks based on whether they have made adequate preparations to enable the plan to be implemented successfully.
Rebates: FINMA has the power to grant the two large banks rebates on the requirements for additional loss-absorbing capital if they have made tangible improvements in their global resolvability.
The systemically important banks and FMIs continued to make progress in 2021. Nonetheless, a number of steps are still needed to bring the recovery and resolution planning to a conclusion.
Overview of the current status of recovery and resolution planning:
The emergency plans of the domestic systemically important banks PostFinance, Raiffeisen and Zürcher Kantonalbank are still not ready to implement, as none of the three banks has reserved sufficient gone concern capital for recapitalisation and continuing operations in a crisis. Raiffeisen and ZKB already have sufficient free Tier 1 capital to meet the emergency plan requirements, but so far neither bank has transferred the required amount into the gone concern capital reserved for emergencies. Raiffeisen intends to build up the required gone concern capital by means of Tier 1 capital and bail-in bonds. ZKB plans to eliminate its shortfall of gone concern capital by issuing bail-in instruments that comply with the provisions in the revised Banking Act. Meanwhile PostFinance’s plan to build up its recapitalisation funds depends to a large degree on the ongoing revision of the Post Organisation Act and the proposed recapitalisation guarantee by the federal government.
FINMA approved the 2020 versions of the domestic systemically important banks’ recovery plans in 2021. It will review the revised versions again this year.
FINMA continues to view the Swiss emergency plans of the two large banks Credit Suisse and UBS as ready to implement.
It also again approved the group-wide recovery plans of the two large global banks Credit Suisse and UBS.
Credit Suisse and UBS made continued progress towards achieving global resolvability over the the last year. On the issue of operational disentanglement, the banks made further improvements in the security of access to financial market infrastructures in a crisis. They enhanced their capabilities to carry out valuations, assess their liquidity and capital requirements continuously and keep FINMA informed of these in a crisis. They also continued to develop their capabilities to carry out a restructuring after a bail-in of gone concern funds. Some areas of work, particularly relating to valuations and restructuring, remain outstanding and will not be completed until at least the end of 2022. Going forward, FINMA will review the banks’ resolvability measures in depth and test whether they are effective and ready to be implemented in practice.
FINMA approved the systemically important FMIs’ recovery plans in 2021 for the first time, subject to certain conditions (based on the 2020 versions). The revised versions will be reviewed by FINMA during 2022.
FINMA discussed its preferred resolution strategy for the central counterparty SIX x-clear with the relevant domestic and foreign authorities and included the regulatory requirements for the strategy in the ongoing evaluation of the Financial Market Infrastructure Act (FinMIA).
The competent authorities also continued to develop the regulatory and supervisory criteria in the following five areas: capital, intra-group financial interdependencies, completion of a bail-in, liquidity and restructuring.
1 The approval was granted subject to certain conditions, which must be fulfilled by 30 June 2022.
2 With the planned recapitalisation guarantee by the federal government as per the Federal Council decision of 20 January 2021, a plausible plan for achieving an effective recapitalisation strategy is now in place. However, at the moment there is no viable alternative strategy.
3 The figures refer to the rebate granted for the accounting year 2022, based on measures implemented by the end of 2021.