Only the two biggest of Switzerland’s systemically relevant banks are adequately prepared for the outbreak of a crisis. The emergency plans of the three other banks fall short of the required level.
The emergency plans of Zuercher Kantonalbank, Postfinance and Raiffeisen do not meet the statutory requirements set by Switzerland’s banking regulator (Finma) yet, according to a statement released by the Bern-based authority on Tuesday.
The five systemically important banks in Switzerland were required to submit a plan for how they expect to guarantee the continuation of their systemically important business without interruption – which includes in particular the domestic deposit and lending businesses as well as payment services. Finma reviewed the measures in the emergency plan with regard to their effectiveness if the bank were at risk of insolvency.
Critically Important for Financial System
Finma was particularly damning in its verdict of the Swiss emergency plans provided by Postfinance and Raiffeisen. Both have «no effective Swiss emergency plan and no plausible plan for how deficits will be rectified,» it said. Zuercher Kantonalbank had no effective Swiss emergency plan yet, but a plan for how it will rectify the situation.
«Implementation of the Swiss too-big-to-fail regime is critically important to the stability of the financial center,» said Finma CEO Mark Branson, according to the statement. «Considerable progress has been made, but there is still more to do.»
UBS: Effective, But Some Work Remains
The emergency plans for the Swiss operations of UBS and Credit Suisse by contrast have been approved and deemed effective, with the smaller of the two rivals receiving slightly better marks for the homework submitted.
The plan provided by UBS, Switzerland’s largest bank, was deemed effective, with the qualification that certain joint and several liabilities remain excessive.
Swiss Holding Structures
The two big Swiss banks were also required to provide a global resolution plan. This plan covers the entire banking group. Finma concluded that both banks have taken important preparatory steps and made considerable progress with respect to their global resolvability.
These steps crucially included the requirement for a structural disentanglement. Both banks have created holding structures and Swiss subsidiaries to facilitate the disentanglement.
In regard to funding in resolution, further work is still required, Finma said. As the other three systemically important banks have little or no foreign business, their resolution plans relate to important functions in Switzerland and therefore are interchangeable with the emergency plans.
