Swiss Regulators Confirm: Bail-In is to Prevent Bank Separation

May 5, 2013 • 9:52AM

May 5, 2013 (LPAC)—The Swiss financial daily Neue Zürcher Zeitung (NZZ) yesterday featured a full-page on how the new Swiss bail-in legislation works. The article, entitled "Recovery and Resolution of Systemically Relevant Banks," by Patrick Raaflaub and Mark Branson, two officials of the Finma (Finanzmarktaufsicht), says, among other things, that the bail-in legislation aims at preventing separation and protection of certain parts of the bank abroad.

The article might be a reaction to EIR's recent exposure of the "Cyprus Template" being in place in Switzerland, too. Its Strategic Alert newsletter has a lot of subscribers in Switzerland, a few of whom are not just passive readers. Intended as propaganda in favor of the new regulation, it has indeed a self-exposure character, as it states among other things that "Financial stability as public good to be protected justifies" the bail-in regulation.

At one point, the authors confess that purpose of the Swiss regulation is to prevent separation of banking activity. Although not referring to a Glass-Steagall type of strict separation, but just to a ring-fencing option, the message is clear: "Only with an effective, credible and internationally recognized strategy for recovery and liquidation of globally acting financial institutions, Switzerland can prevent a preemptive shield over single parts of the company, generally characterized as 'ring-fencing,' in other jurisdictions."

The Finma officials also confirm the role played by the BIS-based Financial Stability Board in the bail-in legislation: "The basic principles for the creation of global recovery and liquidation concepts were issued under the direction of the Financial Stability Board (FSB) in October 2011 (Key Attributes of Effective Resolution Regimes for Financial Institutions). Switzerland oriented itself to the fundamental principles of the FSB and incorporated those guidelines as one of the first countries in its national Law."

Swiss banks represent maybe the single largest systemic risk globally, in terms of concentration of liabilities. The assets of the four largest Swiss banks are over 500% of GDP; one single bank, UBS, is 376% of GDP and the second largest, Credit Suisse, 218%. Balance sheets of the ten largest banks are eight times the GDP.