SNB wants to remedy weaknesses in own funds after CS crisis
Published: Thursday, Jun 20th 2024, 08:00
Updated At: Thursday, Jun 20th 2024, 08:20
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Following the CS crisis, the Swiss National Bank (SNB) wants to remedy weaknesses in the capital adequacy regulation of systemically important banks. In its Financial Stability Report 2024, the SNB writes that core capital must be calculated more prudently and equity for parent companies must be strengthened.
The credibility of core capital (Common Equity Tier 1, CET1) as a measure of financial strength is based on a prudent valuation of assets, the SNB emphasizes. The calculation must be adjusted for assets such as software and deferred tax assets, as these would probably lose most of their value as part of a restructuring.
According to the SNB, the contribution of additional tier 1 capital (AT1) to stabilizing a bank's ongoing operations should also be strengthened. This is to be achieved through measures that ensure the timely suspension of buybacks and coupon payments following sustained losses as well as write-downs or conversion into core capital. In the case of Credit Suisse, the conversion of AT1 bonds has led to numerous legal disputes.
According to the SNB, the capital regime for parent companies is also to be strengthened. Under the current regime, a parent company's investments in its subsidiaries are only partially backed by equity. As a result, the capital ratio of a parent company is overestimated. In the case of Credit Suisse, there was a significant deterioration in the capitalization of the parent company when the value of the subsidiaries was reduced.
UBS already has the estimated future capital requirements at Group level in accordance with the "too big to fail (TBTF)" regulation as at the end of the first quarter of 2024, the SNB notes. However, the requirements for the big bank are increasing due to the increase in market share and size of the bank as a result of the takeover of Credit Suisse. In order to meet these higher requirements, the combined bank has been granted a transitional period from 2026 until 2030 at the latest.
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