Swiss Federal Council sets Too Big to Fail rules

The Swiss Federal Council has confirmed a number of new rules in order to prevent banks from becoming too big to fail, in a bid to improve the resilience of the local financial sector.

The new measures,which must be met by 2019, will in practice mainly affect UBS and Credit Suisse, the two biggest lenders in Switzerland.

The new rules reinforce existing going-concern capital requirements (Common Equity Tier 1 capital as well as contingent capital, in order to absorb bank losses during ongoing operations, particularly the leverage ratio. In practice, this means that the biggest banks must fulfill a loss absorbing capacity of 5% for the leverage ratio and 14.3% for risk-weighted assets

Moreover, banks will have to increase the requirements for loss-absorbing instruments in the case of a gone concern, this includes bail-in instruments, such as  debt capital which can be converted to equity during resolution.

 

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