The Federal Council is planning to set up a new public liquidity backstop to further stabilise Switzerland’s financial sector.
The liquidity backstop is aimed at allowing the Confederation and the Swiss National Bank (SNB) to strengthen the liquidity position of a systematically important bank.
“In order to strengthen systemically important banks’ crisis resilience and reduce the risk of economic turmoil, the Swiss legislator is opting for increased capital and liquidity requirements and an improved ability to restructure or liquidate (too-big-to-fail regulations),” the government’s statement read.
The new capital and liquidity requirements will come into force from 1 July 2022.
Even with higher liquidity requirements, in certain scenarios, a systemically important bank’s liquid assets would still not be enough, the bank warned.
“In the future, in order to increase market participants’ confidence in the ability of a recapitalised and solvent systemically important bank to survive, it is planned to provide a third line of temporary additional liquidity via a public liquidity backstop,” the government said.
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Currently, the SNB offers second-line additional liquidity via emergency liquidity assistance (ELA). It will provide the new liquidity backing in form of a state-guaranteed loan, which is different from a state bailout of a lender.
Switzerland’s Federal Department of Finance (FDF) will prepare a consultation draft on the liquidity backstop by mid-2023, which will be anchored in law.