TEXT-S&P report comments on Switzerland's Bank Resolution Regime

Thu Nov 29, 2012 6:43am EST

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(The following statement was released by the rating agency)

Nov 29 - Switzerland's new framework for a bank recovery and resolution regime is one of various measures that should reduce the likelihood that the government would need to bail out failing systemically important banks in case of need, says Standard & Poor's Ratings Services today in the report: "How The Swiss Bank Resolution Regime Affects Government Support For Its Banks.

The regime, implemented at the start of November by the Swiss regulator FINMA, enhances regulatory powers alongside other requirements. Among them are that banks will be required to hold capital well above the prospective minimum proposed under Basel III. Furthermore, the so called "too big to fail" regime sets out additional regulatory requirements for systemically important institutions. This is due to come into force as of Jan. 1, 2013.

"However, the resolution regime may not in itself be sufficient to completely rule out a future banking crisis or entirely remove the potential for systemic contagion," said Standard & Poor's credit analyst Dirk Heise. "We therefore currently believe that the resolution framework appears to leave the door open for government support of bank bonds in certain situations, notwithstanding its overall aim of limiting the cost of bank rescues for taxpayers."

For this reason, Standard & Poor's believes the Swiss government is for now unlikely to turn its back on systemically important banks. We therefore continue to factor some uplift in our ratings on certain Swiss banks for the likelihood of extraordinary government support in a potential crisis if we consider the banks systemically important to Switzerland. In contrast to this, our issue ratings on subordinated debt of Swiss banks already don't factor in any government support, owing to wide-ranging "bail-in" and transfer powers provided to the Swiss authorities.

"We'll monitor further developments in Switzerland and revise our assessment of the government's likelihood of providing extraordinary support, if appropriate," said Mr. Heise.

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