The Swiss
Federal Council on Thursday started consultation on its planned public
liquidity backstop (PLB) for systemically important banks (SIBs),
shortening the industry engagement period to June 21, 2023. The executive
authority said it decided to wrap this up much quicker due to the urgency of the matter.
The Council first introduced the PLB in March last year as part of plans to
strengthen the liquidity of SIBs in the country during resolution or winding down process. At the
time, the Swiss executive branch tasked the Federal Department of Finance with preparing the consultation draft by mid-2023.
According
to Switzerland’s Banking Act, SIBs such as Credit Suisse, UBS and Raiffeisen, perform critical functions such as domestic deposit, lending and payment
transactions. The backstop is a third-level state-backed liquidity provided to
these types of banks should they run into financial trouble and unable to meet their financial
obligation after exhausting their liquid assets. The public liquidity
backstop becomes available when a second emergency liquidity provided by the Swiss
central bank proves insufficient.
The Federal Council’s decision comes after the recent trouble with top Swiss
lender Credit Suisse. During the
height of the recent United States
banking crisis, the already troubled banking giant saw its shares plunge
to an all-time-low. To prevent a banking crisis, the Swiss apex monetary authority packaged a CHF 109 billion emergency
liquidity rescue for Credit Suisse and brokered a quick takeover of the
lender by
rival UBS.
In a
statement released on Thursday, the Swiss executive branch noted that it used emergency laws during
the period to introduce
the framework for a public liquidity backstop in its effort “to prevent a
disorderly bankruptcy of Credit Suisse.” These provisions have now been added
to the draft amendments to the country’s Banking Act seeking to introduced
the PLB.
“To avoid
them expiring, the Federal Council must submit a draft to Parliament within six
months, in order that it be transferred into ordinary law,” the Council added.
“This draft
is intended to simultaneously transfer into ordinary law not only the framework
for a PLB instrument as introduced in March 2023 by the Federal Council via
ordinance, but also other measures introduced at that time and aimed at
supporting the takeover of Credit Suisse by UBS,” the executive branch further explained.
Switzerland started enforcing rules for SIBs in 2012, requiring higher capital and liquidity requirements in a bid to
reduce the impact the failure of one of the top banks could
have on the Swiss economy. The rules have been tightened over the years. However, the government is
now looking to introduce the PLB.
Gate.io in Hong Kong; CFI’s new office; read today’s news nuggets.
The Swiss
Federal Council on Thursday started consultation on its planned public
liquidity backstop (PLB) for systemically important banks (SIBs),
shortening the industry engagement period to June 21, 2023. The executive
authority said it decided to wrap this up much quicker due to the urgency of the matter.
The Council first introduced the PLB in March last year as part of plans to
strengthen the liquidity of SIBs in the country during resolution or winding down process. At the
time, the Swiss executive branch tasked the Federal Department of Finance with preparing the consultation draft by mid-2023.
According
to Switzerland’s Banking Act, SIBs such as Credit Suisse, UBS and Raiffeisen, perform critical functions such as domestic deposit, lending and payment
transactions. The backstop is a third-level state-backed liquidity provided to
these types of banks should they run into financial trouble and unable to meet their financial
obligation after exhausting their liquid assets. The public liquidity
backstop becomes available when a second emergency liquidity provided by the Swiss
central bank proves insufficient.
The Federal Council’s decision comes after the recent trouble with top Swiss
lender Credit Suisse. During the
height of the recent United States
banking crisis, the already troubled banking giant saw its shares plunge
to an all-time-low. To prevent a banking crisis, the Swiss apex monetary authority packaged a CHF 109 billion emergency
liquidity rescue for Credit Suisse and brokered a quick takeover of the
lender by
rival UBS.
In a
statement released on Thursday, the Swiss executive branch noted that it used emergency laws during
the period to introduce
the framework for a public liquidity backstop in its effort “to prevent a
disorderly bankruptcy of Credit Suisse.” These provisions have now been added
to the draft amendments to the country’s Banking Act seeking to introduced
the PLB.
“To avoid
them expiring, the Federal Council must submit a draft to Parliament within six
months, in order that it be transferred into ordinary law,” the Council added.
“This draft
is intended to simultaneously transfer into ordinary law not only the framework
for a PLB instrument as introduced in March 2023 by the Federal Council via
ordinance, but also other measures introduced at that time and aimed at
supporting the takeover of Credit Suisse by UBS,” the executive branch further explained.
Switzerland started enforcing rules for SIBs in 2012, requiring higher capital and liquidity requirements in a bid to
reduce the impact the failure of one of the top banks could
have on the Swiss economy. The rules have been tightened over the years. However, the government is
now looking to introduce the PLB.
Gate.io in Hong Kong; CFI’s new office; read today’s news nuggets.
