Financial Crime World

Swiss Banking Authority Takes Bold Steps to Ensure Financial Stability

Zurich, Switzerland - In a move to bolster financial stability in the country, the Swiss Financial Market Supervisory Authority (FINMA) has established a dedicated recovery and resolution division, known as GB-R. This new entity pools expertise from various FINMA departments and is responsible for designing and implementing recovery and resolution plans for troubled banks.

Strengthening Resolution Framework

Switzerland’s resolution framework is designed to provide a seamless transition in the event of a bank failure, minimizing disruption to financial markets and ensuring depositors’ interests are protected. The country’s two global systemically important banks (G-SIBs) have strengthened their resilience by implementing measures under the “Too Big to Fail” regime.

Key Measures

  • Stricter capital and liquidity requirements for G-SIBs
  • Resolution framework enabling FINMA to intervene in a timely manner
  • Sufficient loss-absorbing capacity to absorb potential losses without relying on public funding

Early Intervention and Recovery Planning

FINMA has a range of enforcement and early intervention powers to address problem banks. The authority can act at an early stage to address unsafe and unsound practices, using measures such as:

  • Ordering corrective action
  • Imposing conditions
  • Restricting business activities

In cases where a bank’s compliance with regulatory requirements is compromised, FINMA can issue rulings to restore compliance. The authority also has the power to appoint an investigating agent within the institution to verify facts and implement supervisory measures.

Protective Measures

FINMA can order protective measures under the Banking Act (BA) in situations where a bank is over-indebted, has serious liquidity problems, or fails to meet capital adequacy requirements. These measures include:

  • Instructions to governing bodies
  • Appointment of an investigator
  • Removal of governing bodies from office
  • Restriction of business activities

Escalation Mechanism

FINMA has an internal escalation mechanism to transfer responsibility for problem banks from the supervision division to GB-R when a bank enters a crisis situation or meets recovery triggers. This ensures that a dedicated team is responsible for evaluating the bank’s financial status, monitoring its operations, and preparing resolution options.

Conclusion

The Swiss banking authority’s efforts to strengthen its resolution framework and early intervention powers demonstrate its commitment to ensuring financial stability in the country. By pooling expertise and resources, FINMA is better equipped to respond to potential crises and protect depositors’ interests.