Law regulating the activities of banks and other financial institutions. It plays an important role in the restructuring and resolution of banks and includes provisions that ensure that banks in financial difficulties can either be restructured or resolved in an orderly fashion without jeopardising the entire financial system.
The ordinance further elaborates the provisions of the Banking Act and sets out the requirements that systemically important banks must fulfil, including requirements for resolvability.
Is a financial institution that acts as an intermediary between buyers and sellers on financial markets. Essentially, a CCP becomes a buyer to every seller and a seller to every buyer in a transaction. This process helps to ensure the fulfilment of open contracts and reduce the risk of a counterparty failing to meet its obligations.
Is a specialised financial market infrastructure holding securities like shares, either in certificated or uncertificated form (book entry). CSDs play an important role in the safekeeping and transfer of securities and contribute to the efficiency and security of the financial system.
Group set up for G-SIBs due to the FSB’s requirements under the direction of the home supervisory authority and with responsibility for crisis prevention and management in cross-border business.
The Swiss National Bank designates the systemically important banks for Switzerland. If these have not already been designated as global systemically important banks (G-SIBs), they will be deemed D-SIBs.
Systemically important banks must demonstrate in the emergency plan that their systemically important functions can be continued without interruption in a crisis. Only functions that are critical to the Swiss economy are deemed systemically important. Such systemically important functions include in particular the domestic deposit and lending businesses as well as payment services. FINMA must review this plan and evaluate whether it is ready to be implemented.
Under the Financial Market Infrastructure Act (FinMIA) these include the stock exchanges and multilateral trading facilities (MTFs), central counterparties (CCPs), central securities depositories as the operator of a central custodian and/or a securities settlement system, trade repositories and payment systems. Financial market infrastructures can be subdivided into those at the level of trading (stock exchanges and MTFs), clearing (CCPs), settlement and safekeeping (central custodians), reporting (trade repositories) and payments (payment systems). CCPs, central securities depositories, payment systems and trade repositories are referred to collectively as post-trading infrastructures since their activities take place after an exchange of securities has been agreed upon.
The FSB is an international body that monitors the global financial system and makes recommendations for national regulations by issuing international standards.
The FSB publishes an annual list of global systemically important banks. These include banks and financial groups whose disorderly failure could jeopardise global financial stability.
A bank is at risk of becoming insolvent where there is good cause to suspect that it is overindebted, has serious liquidity problems, or does not meet the capital requirements after expiry of a certain time period.
The act regulates the federal government’s supervision of insurance companies and insurance intermediaries. It authorises FINMA to take measures to stabilise insurance companies or order their orderly resolution.
The ordinance further elaborates the provisions of the Insurance Supervision Act and defines how insurance companies in financial difficulties can be restructured or resolved in an orderly fashion in order to protect the stability of the financial system.
Recovery refers to the actions taken by a company to stabilise itself without government intervention.
In the recovery plan, the systemically important institution sets out which measures it will use to ensure its stability on a sustainable basis in the event of a crisis and be able to continue its business activities without government intervention. FINMA is responsible for reviewing and approving the recovery plan.
Resolution refers to the restructuring or liquidation of a company in the context of public authority intervention.
The plan drawn up by FINMA to restructure or liquidate a systemically important institution in its entirety (in the case of an international systemically important bank the entire group, including foreign group entities, which is why this plan is also referred to as the “global resolution plan”). In this plan, FINMA sets out how a restructuring or liquidation ordered by it can be carried out.
An expert group of the FSB whose main task is to develop plans and guidelines to rescue or wind down in an orderly fashion large financial institutions that get into difficulties in order to maintain financial stability.
Resolvability describes a company’s ability to fail in an orderly manner. A systemically important bank is deemed resolvable if conditions are in place that would allow it to be restructured or liquidated in the event of a crisis without endangering financial stability.
Since 1 January 2023, FINMA has conducted an annual resolvability assessment of G-SIBs, taking into account the requirements of the Banking Ordinance (Art. 65a BO). If shortcomings are identified, it can now impose surcharges on the gone concern or liquidity requirements. FINMA granted the Swiss G-SIBs rebates on the requirements for additional loss-absorbing capital between 2016 and 2022 because they had made tangible improvements in their global resolvability. The banks had exhausted the maximum rebate potential (62.5% of 5.7% of risk-weighted assets and 2% of total exposure respectively) and thus had to hold correspondingly less loss-absorbing capital.
FINMA may designate group companies (e.g. central service providers) of institutions as significant group companies. Such companies are normally unregulated companies under the Swiss Code of Obligations. This designation means that FINMA is also responsible for insolvency measures relating to these entities.
Systemic risks are risks that stem from individual market participants and that jeopardise the stability of the entire economy (system). Companies that perform functions on which the Swiss economy relies and which cannot be performed by other companies are deemed “systemically important”.
Functions are deemed systemically important if they are essential for the Swiss economy and are not substitutable in the short term. Chief among these for banks are the domestic deposit and lending business as well as the payment services. The Swiss National Bank is responsible for designating the functions as systemically important.
A company is regarded as being “too big to fail” if its bankruptcy would jeopardise the stability of the entire economy. The government would have to step in to rescue the company. The main focus of discussion is the systemic risks that such companies pose.