Depositor protection at banks and securities firms
If a bank or securities firm is declared bankrupt or a protective measure is imposed under Article 26 para. 1 lets. e-h of the Banking Act, depositors lose access to the money they have deposited. The deposits fall into the bankruptcy assets and without the deposit protection scheme would at best be repaid only partially when the proceeds of the bankruptcy are distributed. The deposit protection scheme, however, is designed to ensure that deposits are paid out quickly up to the maximum amount of CHF 100,000 per depositor. The aim is to prevent depositors from withdrawing funds from their bank because they fear for its safety, thus triggering a bank run.
How depositor protection works
The Swiss depositor protection scheme is based on a three-tier system.
Deposits at Swiss and foreign branches of Swiss banks and securities firms up a maximum of CHF 100,000 per depositor are classed as privileged deposits (Art. 37a Banking Act). These privileged deposits are first paid out from the available liquid assets of the bankrupt institution and outside of the schedule of claims under bankruptcy law. All banks must hold collateral consisting of assets in Switzerland equivalent to 125% of the protected and preferential client deposits (Art. 37a para. 6 BA).
If the liquid assets are insufficient to cover these deposits, esisuisse, the agency of the deposit protection scheme, funds the disbursement of protected deposits in Swiss branches up to a maximum of CHF 100,000 per depositor. esisuisse’s payment liability is limited by law to 1.6% of total protected deposits in Switzerland (with a minimum of CHF 6 billion; Art. 37h para. 3 let. b BA).
If the privileged deposits have not already been paid out to the depositors (tier 1 or 2), they are placed among the second class of bankruptcy claims up to a maximum amount of CHF 100,000. The privileged deposits are at best paid out only partially when the proceeds of the bankruptcy are distributed. Claims on occupational pension schemes (pillar 3a assets) and vested benefits foundations also have preferred status (a total amount of CHF 100,000 per pension fund member is classed as privileged).
The esisuisse FAQs provide further useful information on depositor protection.
Self-regulation and esisuisse
“esisuisse”, which is organised as a private association, is the agency of the deposit protection scheme. “esisuisse” is the self-regulatory organisation of the banks and securities firms and is tasked with deposit protection. It has existed since 2005 (named “Swiss Banks’ and Securities Dealers’ Depositor Protection Association (ESI)” until 2014). All authorised financial institutions with protected deposits are obliged to join this self-regulatory organisation.
