Banks under the lens: Bern tightens on bonuses and strengthens anti-crisis rules (cross-border guide)

Context

In a nutshell

• The Federal Council intends to give more responsibility to the top management of banks.
• The new measures and regulations will be aimed at credit institutions of systemic importance.
• The Government aims to fill the gaps identified in the so-called “too big to fail” (TBTF) device.
• The tools and competences of the Federal Financial Market Supervisory Authority (FINMA) and the access of banks to the liquidity of the Swiss National Bank (SNB) will be expanded.

Key facts

• Who: Federal Council
• What: empowering the top management of banks
• When: not yet specified
• After: fill the gaps identified in the TBTF
• After: expand FINMA's tools and expertise and banks' access to SNB liquidity

The Federal Council intends to make the top management of banks more responsible and avoid the risks deriving from high bonuses. To this end, the Commission today launched the consultation procedure on new measures and regulations for systemically important credit institutions.

The Government wants to fill the gaps identified in the so-called “too big to fail” (TBTF) device, which has left many doubts about the banks' ability to cope with economic crises. According to official sources, the new measures will be aimed at filling the gaps identified in the TBTF, preventing larger banks from being too big to fail.

In Switzerland, major banks

Operational details

The new measures and regulations introduced by the Swiss Government will target systemically important credit institutions. The Government aims to fill the gaps identified in the so-called “too big to fail” (TBTF) device. The tools and powers of the Federal Financial Market Supervisory Authority (FINMA) and banks' access to the liquidity of the Swiss National Bank (SNB) will be expanded.

The planned measures will be applied to all banks with an asset of more than CHF 100 million. This means that around 20 Swiss banks will be subject to these new regulations. The aim is to prevent future financial crises and to protect depositors.

Among the measures envisaged are:

• A capital increase of at least 5% for all banks subject to these new regulations. This means that each bank will have to increase its capital by at least CHF 5 million.
• A limit on the payment of bonuses for bank employees. Bonuses may not exceed 50% of the employee's annual salary.
• An increase in FINMA's supervision of all banks subject to these new regulations. FINMA will be able to carry out more frequent and in-depth checks on these banks.
• An increase in banks' access to SNB liquidity. This means that banks will have access to more liquidity in the event of a financial crisis.

Concrete example: the UBS bank, with an asset of

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Key points

To prevent future crises from falling on the state and the economy, the Federal Council intends to make the top management of banks more responsible and avoid the risks deriving from high bonuses. The new measures and regulations will be aimed at systemically important credit institutions. The tools and powers of the Federal Financial Market Supervisory Authority (FINMA) and banks' access to the liquidity of the Swiss National Bank (SNB) will be expanded.

According to official information, the Federal Council intends to introduce a series of new regulations to regulate the Swiss banking sector. Among these, an amendment to the Banking Ordinance (OB) of 5 April 2018, which provides for the reduction of the ratio between the bonus and the basic salary for bank employees. The current limit is 1:1, but with the new regulation it will be reduced to 0.5:1.

For example, if a bank employee has a base salary of CHF 100,000 per year, his bonus may not exceed CHF 50,000. This means that the top management of banks will have to be more cautious in packaging bonuses for their employees, avoiding creating incentives for risky behaviour.

In addition, the Federal Council intends to increase sanctions for banks that do not comply with supervisory standards. According to official information, the sanctions could reach up to 10 million francs per bank. This means that banks will need to be more accurate

Source: tio.ch