9. The two large banks are undertaking capitalization and restructuring plans, but
leverage remains high. Basel III capital requirements were introduced at the beginning of 2013,
and the Swiss too-big-too-fail (TBTF) legislation requires large banks to hold additional buffers.
The two large banks also started downsizing their investment banking business. Although the
Swiss authorities have no plans to introduce structural measures along the lines of the Volcker,
Vickers and Liikanen proposals, subsidiaries of both banks in countries affected are adjusting their
business models in response.
10. Swiss banks remain vulnerable to cross-border spillovers. Despite retrenchment from
cross-border lending, Swiss banks’ foreign exposure is one of the highest among advanced
economies. Exposure to periphery euro area countries is limited; Swiss banks are most exposed to
the United States and the United Kingdom.
B. Financial Sector Structure
The two G-SIFIs
11. The two major Swiss banks were among the hardest hit of commercial banks in the
GFC, but the authorities reacted promptly. UBS was rescued by a large government package,
which included the purchase of impaired assets as well as a government capital injection. A new
regulatory framework for TBTF banks was enforced from January 2013, with phase-in arrangements
over five years. It set tougher standards than Basel III on capital liquidity, diversification, and
resolution. Switzerland is also an early adopter of new Basel capital rules without exceptions.
12. The Swiss authorities have made commendable progress in putting in place a
resolution regime to address the TBTF problem. The authorities are ahead of many jurisdictions
in adopting reforms broadly aligned with the Financial Stability Board’s (FSB) Key Attributes of
Effective Resolution Regimes (KAs). The legal framework was amended with the aim of resolving
globally systemically important banks (G-SIBs) in an orderly manner, without systemic disruption or
exposing public money to losses.
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