Bern (Reuters) – Switzerland wants to transfer the liquidity aid used under emergency law to save the major bank Credit Suisse into ordinary law.
To this end, the government presented a proposal for a revised banking law on Thursday. Parties, business associations and other affected institutions can now comment on this and make suggestions for changes. In view of the urgency, however, the deadline for the consultation process was shortened to one month. The new law must be presented to Parliament by September, and it should then be dealt with in the coming year.
With the legislative proposal, Switzerland is accelerating the introduction of an instrument that already exists in other important financial centers such as Great Britain, the USA and the EU. There are differences in the design, but all have the purpose of providing systemically important banks with liquidity support in an emergency.
In spring 2022, the Swiss government decided to also introduce a so-called “Public Liquidity Backstop” and to draw up a legislative proposal by mid-2023. However, the Credit Suisse crisis prompted the government to use such liquidity support based on an emergency ordinance as early as March 2023. To avert a bank run and threat of default, authorities orchestrated a takeover of the scandal- and crisis-ridden bank by larger rival UBS.
As part of a government CHF 209 billion package, the Swiss National Bank granted Credit Suisse a liquidity assistance loan of up to CHF 100 billion secured by a federal default guarantee. The bank temporarily used around 60 billion francs of this, at the end of April it was still ten billion francs. A person familiar with the matter said that this sum is likely to be further reduced in the near future.
The “Public Liquidity Backstop” is intended to prevent a solvent bank from going bankrupt due to liquidity bottlenecks. The maximum amount depends on the assets on the balance sheet; the authorities want to make sure that in the event of bankruptcy they get the money back by realizing the assets. In addition to the two major banks, the other three systemically important institutions in Switzerland, namely the Zürcher Kantonalbank, Raiffeisen and PostFinance, should also benefit from this state liquidity guarantee. Because of their importance in deposit taking, lending, and payments, a default by one of these institutions could disrupt the country’s economy as a whole.
(Report by Oliver Hirt; edited by Sabine Wollrab. If you have any questions, please contact our editorial team at [email protected] (for politics and the economy) or [email protected] (for companies and markets).)
Leverage must be between 2 and 20
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