Focus on the large global Swiss banks

Switzerland’s major global banks must be resolvable in a crisis and able to continue the systemically important functions in their Swiss entities without interruption. Both the large banks made further improvements in their resolvability in 2021, but there is still work to do for both banks and regulators.

FINMA’s primary resolution strategy for a large global Swiss bank is to resolve these institutions via a “single point of entry” bail-in (SPoE). This involves FINMA intervening at the level of the group holding company, i.e. Credit Suisse Group AG and UBS Group AG. For the large international banks the SPoE approach has the key advantage that a resolution is carried out by the home supervisor alone. In the SPoE approach the bail-in bonds issued by the group holding company are converted into equity.

The large global banks are responsible for making all the preparations necessary to ensure resolvability. In particular, they are required to develop their own internal capabilities and eliminate obstacles to ensure that FINMA can restructure or liquidate the entire group in a crisis. The measures and capabilities needed are defined by the “too big to fail” rules and the resolution strategies drawn up for Credit Suisse and UBS. There are interrelationships and interdependencies between these three elements of regulation, strategies and capabilities (see the table below). As global resolvability encompasses parts of the group located abroad, the expectations of foreign supervisory authorities are taken into account in the resolution strategy. Achieving resolvability is a multi-year process that involves intensive and detailed work by all concerned. So far a number of important milestones have been reached.

The Swiss emergency plan is designed to ensure continuity of systemically important functions in the event of the risk of insolvency. FINMA has approved the emergency plans of Credit Suisse and UBS as effective and ready to implement.

Further improvements in resolvability

Both banks continued to improve their resolvability in a number of different areas in 2021 and may thus be eligible for additional rebates on their gone concern capital requirements. The resolvability assessment is broken down into four predefined categories as set out in the table below.

FINMA believes both banks continue to meet the requirements for structural disentanglement, primarily owing to the establishment of holding structures in recent years and the transfer of systemically important functions to Swiss subsidiaries.

In the operating disentanglement category, both large banks have made significant progress, both in their operational continuity and access to financial market infrastructures in a crisis. Further progress has also been made in the implementation and resources category. The banks have now largely integrated the capability to estimate and report their liquidity needs in a crisis or resolution into their systems, as required by FINMA. The banks’ capabilities to provide the relevant data to complete a bail-in were successfully tested, with a number of further improvements being identified for implementation.

In the UBS Group, the current breakdown of business segments between the various legal entities gives rise to heightened financial interdependencies. UBS has implemented the mitigating measures stipulated by FINMA and will continue to build up a transparent reporting system.

Other outstanding work by the banks, particularly with regard to valuations and restructuring, will not be completed until the end of 2022 at the earliest.

The authorities have also continued to develop the regulatory and supervisory criteria in the following five areas: intra-group financial interdependencies, capital, completion of a bail-in, liquidity and restructuring.

The status of the preparatory work at the end of 2021 is set out in the table below. The colour code shows the implementation status measured against the target of full global resolvability. The directional arrows show the progress that has been made since last year.

Status of preparatory work at the end of 2021

Resolution 2022

Colour code legend

  • Green: preparatory work completed and regulatory and supervisory requirements defined
  • Orange: preparatory work not completed or regulatory and supervisory requirements not defined in full yet
  • Red: no plausible plan, preparatory work not started or regulatory and supervisory requirements not defined yet

Arrows legend

  • Straight arrow: no significant change compared with last year
  • Up arrow: material improvement compared with last year (with or without a change in colour code)
  • Down arrow: material deterioration compared with last year (with or without a change in colour code)