The Federal Council commissions binding plan for amended legislation for the too-big-to-fail problem
Bern, 28.04.2010 - The Federal Council sees a need for action in the case of the too-big-to-fail problem. The insolvency of a systemically important bank should, on the one hand, be averted by using preventive measures. But, on the other, in the case of the difficulties which have arisen recently, measures to mitigate damages are also required. It is for this reason that the Federal Council considers legislation to be necessary, as it notes in its comments on the expert committee's interim report. Already in May, it wishes to have a binding schedule for amending the Banking Act in order to solve the too-big-to-fail problem.
Comments of the Federal Council
- The Federal Council notes with approval the expert committee's interim report and expresses its thanks for the work carried out up until now.
- The Federal Council sees a need for action in containing the too-big-to-fail problem.
- The Federal Council considers it right and proper that the interim report recommends measures to be taken in the areas of prevention and damage mitigation. The recommended increases in the capital, liquidity and risk diversification requirements have a preventive effect. They are the core elements in reducing the likelihood of insolvency of a systemically important bank. However, because financial crises cannot be ruled out in the future as well, measures to mitigate damages are also required. It should be possible to use these subsidiarily. In this area, intervening in the organisational structure, e.g. restricting intra-group capital flows, should be examined.
- The Federal Council considers it necessary for systemically important banks to be more stringently regulated. In doing so, it is examining the legislative text recommended by the expert committee as a basis for the Confederation's legislative work on the recommended core measures.
- The Federal Council shares the opinion of the expert committee that the core measures should now be specified in concrete terms, and further measures should be examined in greater depth and prioritised. The expert committee will present an overall package of measures in the final report. The Federal Council expects the expert committee to carry out a detailed analysis of the effectiveness of all measures with regard to containing the too-big-to-fail problem, as well as their impact on the economy.
- The Federal Council is going to invite the expert committee to bring preparation of the final report forward to 31 August 2010.
- The Federal Council will then promptly submit legislative proposals to contain the too-big-to-fail problem to parliament. The aim is to have a dispatch adopted already in 2010. In this way, decisions can be made on the overall package based on a comprehensive overview of its impact, and taking into account other international developments.
- Already in May, the Federal Department of Finance, Federal Department of Foreign Affairs and Federal Department of Justice and Police will submit to parliament a binding plan for amending the Banking Act in order to solve the too-big-to-fail problem. A planning resolution should set out primarily timeframes and key points for the solution envisaged. This mandate issued by the Federal Council is based on Article 28 of the Parliament Act.
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In its meeting on 4 November 2009, the Federal Council appointed an expert committee to examine the economic risks posed by big companies, (cf. FDF press release dated 4 November 2009). The expert committee includes representatives from authorities, the academic world and private industry. On 22 April 2010, the expert committee published an interim report in which it presented initial proposals for limiting the risks in the banking sector.
Address for enquiries
Martin Hess, Head of the International Monetary Issues and Financial Market Stability Division, State Secretariat for International Financial Matters (SIF), tel. 031 32 26048
Publisher
Federal Chancellery
https://www.bk.admin.ch/bk/en/home.html
Federal Department of Finance
https://www.efd.admin.ch/efd/en/home.html