Legal basis for the recovery and resolution of banks

Banks fulfil important economic functions such as maturity transformation and payment transactions. Institutions that perform a very high proportion of these activities are considered systemically important. The Banking Act and the ordinances based on it contain specific provisions to increase the resilience of these institutions and define requirements for crisis planning. In addition, the law grants FINMA sole responsibility for initiating protective measures as well as restructuring and bankruptcy proceedings.

The provisions of the Banking Act (BA) on systemically important banks (Art. 7 ff.), on measures in the event of a risk of insolvency (Art. 25 ff.) and on the liquidation of insolvent banks (Art. 33 ff.) set out the specific requirements and measures for the recovery and resolution planning of systemically important banks and for a possible restructuring or bankruptcy of a bank. 

The Banking Ordinance (BO) specifies the necessary implementing provisions. In particular, the ordinance regulates emergency planning, recovery and resolution planning and improvements to the resolvability of systemically important banks (Art. 60 ff.). 

The Capital Adequacy Ordinance (CAO) also contains the provisions on additional loss-absorbing capital (Art. 18 ff.). Additional Tier 1 capital and supplementary capital can be used to offset losses in the event of insolvency measures. This in turn strengthens the effectiveness of insolvency measures. 

The Liquidity Ordinance (LiqO) specifies the liquidity requirements for systemically important banks and covers their specific risks (“liquidity buffer”, Art. 19 ff.). The additional requirements must, for example, take account of a prolonged stress situation. FINMA may also stipulate additional institution-specific requirements, for example to take account of intraday liquidity requirements or liquidity requirements for a restructuring or liquidation.

The FINMA Banking Insolvency Ordinance specifies the restructuring and bankruptcy proceedings under banking law within FINMA’s remit.