Saturday, 20 April 2024

FSB suggests enhancing framework for global systemically important banks in Switzerland

5 min read

The Financial Stability Board (FSB) today published its Peer Review of Switzerland, assessing its too-big-to fail (TBTF) regime for global systemically important banks (G-SIBs).

These reforms aim to reduce the systemic and moral hazard risks associated with these institutions through additional prudential measures, enhancing supervisory intensity and effectiveness, and adopting an effective resolution regime. The UBS-Credit Suisse merger, and events leading up to it, provided a test of the implementation of the TBTF reforms and therefore informed the findings, but the review does not discuss those developments in detail as they have been described elsewhere.

The review finds that the Swiss authorities have made important strides toward implementing an effective TBTF regime for G-SIBs. The Swiss Financial Market Supervisory Authority (FINMA) has introduced requirements for G-SIBs that go beyond international minimum capital and liquidity standards, and has devoted more resources to the supervision of G-SIBs under its proportional and systematic risk-oriented approach. The authorities have also enhanced the domestic framework for recovery and resolution of G-SIBs in areas such as resolution powers, recovery and resolution planning and cooperation with foreign authorities.

Notwithstanding this progress, the review concludes that additional steps can be taken to further strengthen the TBTF framework for G-SIBs in Switzerland. This is particularly important after the merger of the two Swiss G-SIBs into an even bigger G-SIB, whose failure could have severe impact on the Swiss economy and the global financial system. These steps include: increasing FINMA’s resources for supervision, recovery and resolution; strengthening the supervisory framework and early intervention powers; and enhancing the recovery and resolution framework. The review also notes while the recent reforms made to the Swiss deposit insurance system represent an improvement, some gaps still exist that the authorities may want to consider addressing.

Ryozo Himino, chair of the FSB’s Standing Committee on Standards Implementation (SCSI) that oversaw the preparation of the peer review, said: “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.”

Re-disseminated by The Asian Banker

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