This surcharge amounts to additional loss-absorbing capital of between 1.0% and 2.5% of riskweighted assets, with the specific requirement depending on the degree to which an institution is systemically important. Second, it introduces a countercyclical buffer ranging between 0.0% and 2.5% of total risk-weighted assets, to increase the system’s resilience to cyclical systemic risk. This buffer can be temporarily imposed when credit growth is judged  1  Cf. for instance Borio, C. (2012) or Schularick, M. and Taylor, A. (2012). BIS central bankers’ speeches  1  excessive. These new rules are being phased in over several years and will come into full effect in 2019.2 Regulation in Switzerland: Framework and progress so far Switzerland is well advanced in the process of introducing a new regulatory approach in line with this international framework. There was, and still is, an urgent need to proceed faster and to go beyond the global minimum standards. First, the size of Switzerland’s two major banks, Credit Suisse and UBS, relative to GDP is very large by international standards (8:1 in 2007 and 4:1 today). It is worth recalling that, back in October 2008, in order to prevent a breakdown of our financial system, the Swiss authorities had to take measures to strengthen UBS, putting a large amount of public funds – up to USD 60 billion – at considerable risk. Despite the favourable turn of events since then, we have to take all means necessary to avoid such a situation in the future.
Virtually all of the net credit growth since then has been from the bond markets. In tandem, the assets under management have risen by 60% globally and 80% in the EU. These trends will continue as the Capital Markets Union is developed. The ESRB is currently contributing in two ways to more resilient capital markets. First, it is promoting a shared understanding of the fundamental drivers of market liquidity. Second, it is gathering consistent information on the nature and size of the risks associated with market-based finance. The ESRB has unique powers in this regard given its ability to collect information from financial participants from across the EU.1 The ESRB is currently surveying market makers and asset managers as part of a broader study into the risks from a reduction in market liquidity. This work should be completed by mid-2016. The survey will draw out the implications for liquidity conditions, including whether openended funds have liquidity sufficient to meet redemptions in the event of market stress. 1  2  Of course, the ESRB must exercise this power with care and precision. And the case for doing so must be compelling. But the rapid growth of market-based finance satisfies these tests. BIS central bankers’ speeches  In a similar survey of 143 investment funds, the Bank of England found that, in aggregate, these funds expected to be able to liquidate in one day roughly three times estimated dollar corporate bond market turnover; clearly a fallacy of composition. The ESRB survey will provide a valuable wider perspective.