SWITZERLAND Law and Practice Contributed by: Judith Raijmakers and Florian Thomas Willi, Loyens & Loeff
Liquidity Requirements As a main rule, a bank must always have suffi - cient liquid assets to meet their payment obliga - tions, even in stress situations. To achieve this, banks must maintain adequately measured, sus - tainable liquidity reserves and ensure appropri - ate financing. The LiqO implements Basel III’s liquidity standards and sets out both qualitative and quantitative liquidity requirements. With respect to qualitative requirements, banks must, inter alia, manage their liquidity risks appropriately according to their size and busi - ness complexity, establish processes for identi - fying, managing, and monitoring liquidity risks to ensure they always have sufficient liquidity and that their payment and settlement systems are not impaired, and implement measures to miti - gate liquidity risks. With respect to quantitative requirements, banks must comply with a LCR and net stable funding ratio (NSFR). The LCR requires banks to ensure that they have sufficient high-quality liquid assets (HQLA) to cover their short-term liabili - ties within 30 days. The NSFR promotes long- term stability by requiring banks to maintain a stable funding base to finance their long-term assets. The calculation of both LCR and NSFR is comprehensively regulated in the LiqO. FINMA monitors compliance with these requirements and can take appropriate measures in case of non-compliance. Risk Management Banks must manage concentration risks and adhere to specific regulations. As a general standard, the maximum risk concentration is set at 25% of the bank’s adjusted Tier 1 capital (Tier 2 supplementary capital is generally not taken into account).
regulatory law. Capital adequacy and liquidity requirements are regulated in the CAO and LiqO. In November 2023, the Federal Council decided to put the Basel III standards (also referred to as Basel 3.1) into force by means of an amendment to the CAO. Such amendments will take effect in January 2025 and will be accompanied by a number of FINMA ordinances (see 1.1 Key Laws and Regulations ). Regulatory Capital Requirements Regulatory capital Non-systemic banks are required to maintain a minimum regulatory capital of at least 8% of their RWA: (i) 4.5% must be held in the form of common equity Tier 1 (CET1), and (ii) 6% must be held in the form of Tier 1 capital. If the mini - mum capital required and capital buffer (see below) do not sufficiently cover the risks of a bank, FINMA may require additional capital to be held by such bank. FINMA assesses this on a case-by-case basis. Capital buffer Further, banks must have a capital buffer rang - ing from 2.5% to 4.8% of their RWA. Further, the Swiss sectoral countercyclical capital buffer (CCyB) targeted at mortgage loans financing res - idential property located in Switzerland remains at 2.5% as decided by the Federal Council in January 2022 (this is to mitigate and counteract Banks with total assets of at least CHF250 bil - lion, of which (i) the total foreign commitment amounts to at least CHF10 billion, or (ii) with a total foreign commitment of at least CHF25 bil - lion, are further required to maintain an extended countercyclical buffer of up to 2.5% of RWA (in the form of CET1). risks from excessive credit growth). Extended countercyclical buffer
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