Swiss banks practically shot down ‘Basel III Final’

Paradeplatz Grossbanken UBS CS Bankiervereinigung SBVg Basel III Geldhäuser Schweiz Finma
Major Swiss banks UBS and CS reside in Zurich. (Image: Claudio Schwarz / unsplash)

The Swiss regulation for banks’ own funds as well as some Finma rules are to be adjusted. However, the planned changes are not at all palatable to the local financial institutions.

The consultation of the Federal Department of Finance (FDF) on the amendment of the Capital Adequacy Ordinance (CAO) and the consultation of the Swiss Financial Market Supervisory Authority (Finma) on its regulations for the implementation of ‘Basel III Final’ are in full swing.

And this is exactly where the Swiss banks are barging with their “point of view“.

The implementation of the corresponding standards of the Basel Committee on Banking Supervision (BCBS) is to be welcomed, the banks wrote in a friendly manner in a recent statement via their mouthpiece, the Swiss Bankers Association (SBA).

But the local credit institutions criticize that the Swiss authorities apparently wanted to act particularly hastily.

Together with others

“We consider the authorities’ assessment that the impact on the future viability and competitiveness of the financial center has been taken into account as far as relevant, or that the implementation of the Basel standards in other important financial centers has been taken into account as far as possible and relevant, to be inaccurate,” the SBA informed somewhat rigidly.

But, what it means is clear. There are no draft implementations yet for the U.S.  and the U.K.

This is particularly relevant, it said, because the benchmarks mentioned explicitly included the U.S. and U.K. as comparator jurisdictions in addition to the EU. Furthermore, the authorities gave far too little weight to the implementation in the EU, which is highly relevant for competitiveness, in a legal comparison.

Endless loop as a goal?

For the international competitive situation the focus should be on the comparative jurisdictions that are important for the Swiss financial center, namely the EU, the U.S.A. and the U.K. The competition-relevant aspects of fundamental importance should only be finally defined by Switzerland when there is sufficient clarity as to how they would be implemented in the important comparative jurisdictions.

In doing so they actually send the project into an endless holding pattern. Admittedly, the argument with the international perspective cannot be dismissed out of hand.

However, if foreign governments and regulators were to wait for the decisions of the important Swiss financial center, believes that ‘Basel III Final’ would come to a complete standstill because there would be no progress at all and everyone would be endlessly waiting for everyone else.

Thorn in the eye

Switzerland could also play a pioneering role. But the local banks don’t want that. At the same time, Swiss banks raise the following key concerns:

Due to the weak data situation and methodological deficiencies in quantifying the benefits of ‘Basel III Final’ in particular, the informative value of the regulatory impact assessment (RIA) presented is severely limited.

It is not able to demonstrate the net benefits of the introduction of ‘Basel III Final’ in Switzerland in a sufficiently robust manner, warns the SBA.

Old concern

The demands are illustrated by examples. For example, there should be no introduction of capital requirements for the output floor for pension and investment funds without an external rating until there is clarity about the implementation in the EU and U.K. or about an accepted industry solution. 

According to the position paper, Switzerland should also wait until there is international clarity on market risks and the fundamental review of the trading book.

In the real estate and mortgage markets the banks want to stay with the current situation anyway, as has recently reported. In addition to the old requirements, the fire of the banks around UBS, Credit Suisse & Co. has now intensified against the Basel regulations.

Commodities in their sights

And the bankers highlight another important point.

This concerns the so-called ‘sectoral output floor’ for Swiss mortgage positions. This should be limited to the level of the individual institution (and the financial group of the individual institution) without being applied at group level.

In addition, the Swiss banks are demanding that the so-called RSF factor be lowered for trade finance, for example, which is an important business area for credit institutions. The required stability funding would have to be reduced from 50 to 10 percent for commodity trade finance.

Basis overturned

And the financial consequences of this regulation are also a thorn in the side of Swiss bankers.

The regulatory impact assessment concludes that the implementation of ‘Basel III Final’ in Switzerland would entail one-off net costs of almost 900 million Swiss francs in macroeconomic terms. This would generate a recurring annual (economic) net benefit of 60 million Swiss francs.

Under the underlying ‘cautious’ assumptions, therefore, “the economic investment of a national implementation of Basel III Final … could be amortized within fifteen years,” the officials’ version said, citing experts.

Killer argument activated

“These results and conclusions appear as decidedly little resilient,” the SBA wrote in their statement. That is actually also clear – go back to the beginning.

Politicians will hardly decide anything for Switzerland if the financial benefit on the financial system is on such shaky ground and the SBA is so opposed to it.

Together with the wait-and-see attitude for foreign regulations, a tightening of the capital requirements is thus inevitably postponed to some never-never day.


Swiss banks practically shot down ‘Basel III Final’

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