Federal Council plans quantitative minimum requirements for secured liquidity access at systemically important banks

As the Federal Council noted in a draft published on Wednesday, the regulation responds to insights gained from past crises. The ordinance creates the basis for the SNB to provide liquidity in a targeted and transparent manner during stress phases, without giving rise to disproportionate risks.

Background and objective of the amendment

For the affected institutions, the innovation means they must prepare for additional quantitative requirements. These include, for example, requirements regarding the amount and quality of collateral they pledge at the National Bank. The obligation to hold sufficient pledgable assets thereby becomes a fixed component of regulatory preparation.

At the same time, the Federal Council wants to take into account, through the differentiation between institution sizes, the fact that smaller banks less frequently make use of extensive SNB facilities. The exemption is intended to prevent regional banks and cantonal banks from being burdened with costs that are disproportionate to their risk profile.

According to observers, the trigger for the regulation is also the so-called CS debacle, which exposed the thresholds of Swiss banking supervision in multiple respects. At the time, the federal government responded with measures and transitional arrangements, which are now to be transferred into a permanent, rule-based order. The ordinance is thus a further building block in the post-crisis follow-up.

Impact on banks and the National Bank

The draft also provides for the National Bank to be consulted on the concrete design of the requirements. This is intended to ensure that monetary policy and supervisory logic do not diverge. The SNB can thus point out operational frictions at an early stage, for example when collateral structures affect day-to-day monetary policy operations.

For UBS, as the country's largest systemically important institution, the new rules are of immediate relevance. In the immediate aftermath of the Credit difficulties, the bank had significantly expanded its balance sheet and is classified as systemically important. Stricter quantitative requirements for secured liquidity access increase the pressure to always have sufficient collateral eligible for central bank operations.

Initial reactions from the industry were initially available only in preliminary statements. Banking associations and individual institutions pointed out that the requirements would have to be designed in a practicable manner so as not to impede refinancing capacity in normal market phases. The consultation process is to be used to sharpen technical details.

Next steps and consultation

It remains open in what timeframe the amended ordinance is to enter into force. The Federal Council communicates the consultation deadline in the accompanying explanatory report; parallel talks are underway with the Financial Market Supervisory Authority and the National Bank. The aim is an entry into force that gives institutions sufficient lead time for implementation.

Overall, the Federal Council's initiative is understood as a lesson from past turbulence and as a contribution to strengthening the resilience of the Swiss financial centre. With clearly defined, quantitative thresholds, there should be less room for ad-hoc decisions in the future, without curtailing the National Bank's monetary policy room for manoeuvre.

In the Liquidity Ordinance, the Federal Council wants to regulate, among other things, quantitative minimum requirements for systemically important and medium-sized banks regarding secured liquidity access at the National Bank. Smaller banks are not affected.