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13:58 GMT
GENEVA, Dec 22 (KUNA) -- The Swiss Federal Council launches at its meeting
on Wednesday the consultation on "too big to fail" legislative proposals for
dealing with the systemic risks of big banks.
The draft for a corresponding amendment to the Banking Act is based on the
proposals of a group of experts.
According to the draft, systemically important banks should hold more
capital, meet more stringent liquidity requirements and improve their risk
diversification.
They should be organised in such a way that a national economy's
systemically important functions can be maintained even in the event of
threatened insolvency.
In order to promote the issue of new reserve and convertible capital in
Switzerland, the Federal Council is also proposing tax measures. The
consultation will last until 23 March 2011.
The proposed package of measures is designed to prevent the state from
having to use tax revenues in the future in order to bail out systemically
important banks and also prevent entire national economies from running into
difficulty because of financial crises. In the future, there should no longer
be any banks that are too big to be abandoned by the state (too big to fail).
In November 2009, the Federal Council appointed a Commission of Experts
consisting of representatives from the public sector, academia and business
circles to put forward proposals to alleviate the too-big-to-fail problem. The
Commission of Experts submitted its final report to the Federal Council on 30
September 2010.
The experts' legislative proposal was taken up by the Federal Council and
fleshed out. The key focus of the package is on four core measures: The
Strengthening of the capital base, More stringent liquidity requirements,
Better risk diversification and Organisational measures to ensure the
maintenance of systemically important functions (e.g. payment transactions) in
the case of threatened insolvency.
For implementation of the more stringent liquidity requirements, two new
instruments need to be provided for in the Banking Act: reserve capital and
convertible capital (contingent convertible bonds, or CoCos). The issue of
CoCos in Switzerland will significantly reduce the legal risks in the case of
an officially ordered conversion in a crisis.
The Federal Council is proposing tax measures to promote the issue of
bonds, and thus also CoCos, in Switzerland as well as to boost the Swiss
capital market. These include, for example, the abolition of the issue tax on
debt capital and withholding tax changes. Switzerland as a business location
will benefit from this.
The draft law also includes regulation of the remuneration of those
systemically important banks that have to rely in any way whatsoever on
federal funds despite all efforts to alleviate the too-big-to-fail problem.
In such cases, the Federal Council will be obliged to order that
adjustments be made to the remuneration system of the bank in question. The
consultation by the interested parties will last until 23 March 2011.
The Federal Council's dispatch for the attention of parliament is expected
in spring 2011 so that the bill can be considered by the first chamber during
the summer session and by the second chamber during the autumn session. The
legislative amendments could come into force at the start of 2012 at the
earliest. Transition periods should facilitate implementation. (end)
ta.aff
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