Federal Council extends liquidity through central banks (cross-border guide)

Context

In a nutshell

• The Federal Council has decided to extend the potential for liquidity provision through central banks. * The amendment to the Liquidity Ordinance is intended to introduce requirements that banks must meet for the preparation of collateral accepted by central banks.

The Federal Council has decided to extend the potential for liquidity provision through central banks by introducing an amendment to the Liquidity Ordinance. This change of strategy was motivated by the need to increase the resilience of the Swiss financial system, especially after the economic crisis of 2008.

The amendment to the Liquidity Ordinance is intended to introduce requirements that banks must meet for the preparation of collateral accepted by central banks. In particular, banks must demonstrate that they have an adequate level of liquidity and are able to handle situations of financial stress.

The new regulation provides for central banks to be able to provide liquidity to commercial banks in case of need. This could be through the granting of loans or the sale of government bonds. In addition, central banks could also provide collateral to commercial banks for their exposure to foreign markets.

The new regulation will apply from 1 January 2025. Swiss banks will therefore have to adapt their strategies and

Operational details

Key facts

• Who: The Federal Council
• What: Extension of liquidity supply potential through central banks
• When: June 2025
• Where: Switzerland
• Amount: Not specified
• What: Introduction of requirements for the preparation of collateral accepted by central banks

The Federal Council has announced a major extension of the liquidity-providing potential through central banks, with the aim of strengthening Switzerland's financial stability. As of June 2025, Swiss central banks will be able to provide liquidity to financial institutions in case of need, thanks to the introduction of new requirements for the preparation of collateral accepted by central banks.

This step was made possible by the amendment of the Federal Banking Act (LBG) of 8 October 2020, which introduced the possibility for central banks to provide guarantees in favour of financial institutions. With this extension, central banks will be able to provide liquidity of up to 10 billion Swiss francs (CHF) to financial institutions in case of need.

A concrete example of how this system will work is the case of the Zurich-based bank UBS. UBS will be able to access liquidity of up to CHF 5 billion, provided it presents a guarantee accepted by the central banks. This means that the bank will have to present a guarantee that covers

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Key points

Federal Council extends liquidity through central banks

The Federal Council has decided to extend the potential for liquidity provision through central banks. The amendment to the Liquidity Ordinance is intended to introduce requirements that banks must meet for the preparation of collateral accepted by central banks.

The measure was taken to ensure the stability of the Swiss financial system and to provide banks with wider access to sources of liquidity. The amendment of the ordinance comes into force on 1 January 2024 and applies to all Swiss banks.

According to Article 2 of the amendment to the Ordinance, banks must meet the following requirements to obtain guarantees from central banks:

• Have a net worth of at least 200 million Swiss francs
• Have an asset-to-resource ratio of at least 15 to 1
• Have a credit activity of at least 100 million Swiss francs
• Have a credit rating of at least A- from one of the major rating agencies

Banks that meet these requirements will be able to access liquidity guarantees provided by central banks. Guarantees will be available up to a maximum amount of CHF 500 million for each bank.

The amendment to the ordinance was adopted to ensure the stability of the Swiss financial system and to provide banks with wider access to sources of

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Source: admin.ch