The definitive FINMA Circular "Capital buffer and capital planning in the banking sector" published today redefines the capital adequacy requirements for banks under Pillar 2 of the Basel Capital Accord. The Circular serves to replace the overall 20% safety margin of the minimum requirements in place until now with a differentiated regime that reflects and fleshes out current supervisory practice. Based on the new regime, the capital buffers required by FINMA are structured according to objective criteria and are risk-based. The capital buffers required are aligned with each institution's size as well as the nature and complexity of its operations. They are to be made anticyclical. The new regime will not trigger a need for new capital for most institutions. Rather, the Circular sets down a higher lower limit for their capital base. The Circular will enter into force on 1 July 2011.
The Circular "Capital buffer and capital planning in the banking sector" is directed at all banks and securities dealers with the exception of the two big banks for which a stricter special regime has applied since 2008. Instead of an overall capital buffer of 20% of the minimum requirements, the additional capital buffer is determined by a differentiated means of measurement. FINMA divides institutions into five categories based on their total assets, assets under management, privileged deposits and required equity capital. The categories are assigned a capital adequacy target and an intervention threshold expressed as capital ratios. This approach makes FINMA's expectations foreseeable, understandable and transparent for the institutions in question. The Circular is based on the applicable provisions of the Capital Adequacy Ordinance (CAO) and is thus not affected by the stronger capital base for banks agreed by the Basel Committee in December 2010 under Basel III. However, it is consistent with the new capital adequacy requirements under Basel III.
Changes made to the consultation draft
Many responses were received to the draft circular of 31 January 2011. The results of the consultation period led to the consultation draft being adjusted in two areas in particular. Banks are now allowed as a first step to define the measures they will take if their capital falls below the capital adequacy target. Only if FINMA deems that the actions planned by the institutions are inadequate, not plausible or are not being implemented does it enforce supervisory measures of various rigidity to restore the capital buffer target.
The second area in which FINMA made adjustments in view of the definitive version of the Circular concerns the ongoing implementation of Basel III in the CAO and the pending "too-big-to-fail" draft legislation. FINMA has taken into account the comments from the consultation period expressing reservation by incorporating a reconsideration clause into the Circular whereby it will review the supervisory practice specified in the Circular if the definitive capital requirements of Basel III and of the "too-big-to-fail" draft legislation are changed considerably.
Tobias Lux, Media Spokesperson, Phone +41 (0)31 327 91 71, firstname.lastname@example.org