d) The ‘too big to fail’ issue is especially pronounced in Switzerland  As I’ve mentioned, in Switzerland, too, a package of state support measures for UBS in 2008 was unavoidable. The capital injection of around CHF 6 billion from the Confederation amounted to some 10% of federal receipts, while the distressed assets of up to USD 60 billion that the SNB was willing to take on represented some 10% of GDP. 6 In its 2011 dispatch on the ‘too big to fail’ (TBTF) legislation, the Federal Council noted that this commitment was associated with considerable risks for taxpayers, and that future rescue packages might not be financially sustainable for Switzerland. 7 This is because the ‘too big to fail’ issue is especially pronounced here in Switzerland. The two big banks, UBS and Credit Suisse, have very large balance sheets relative to GDP, owing to their substantial international activities (cf. slide 3). At the same time, they also have a significant market share of domestic lending and deposit business, and are major players in the area of payment transactions. Moreover, in an international comparison, three other banks which have been designated as systemically important by the SNB – PostFinance, Raiffeisen Group and Zürcher Kantonalbank – also have very large balance sheets relative to GDP. For example, Raiffeisen and ZKB relative to Swiss GDP are about double the size of the largest US banks relative to US GDP.
Using the adapted risk model, the maximum assumed risk of loss on the corresponding positions, and hence the requisite capital requirement, was reduced. 18 Granting permission to use this model was, in the conditions prevailing at the time, a logical step and in line with international practice. During the crisis, however, it became clear that the overreliance on risk models was a mistake – something which FINMA (the successor to the SFBC) has also acknowledged in hindsight. 19  Switzerland’s regulatory response to the ‘too big to fail’ issue The financial crisis vividly exposed the shortcomings of banking regulation. A broad consensus quickly developed over the need for a thorough overhaul of the regulatory framework. In Switzerland, the UBS case, in particular, generated strong political momentum for stricter banking regulations. a) Extensive adjustment of international regulatory standards  At international level, the Basel Committee and the Financial Stability Board (FSB) subsequently adopted a number of measures to strengthen banks’ resilience and find a solution to ‘too big to fail’. With respect to banks’ resilience, the Basel Committee increased the minimum risk-weighted capital requirements, in terms of both quality and quantity. It also specified a capital surcharge for systemically important banks over and above the new minimum requirements applying to all banks. Furthermore, it revised the calculation of risk-weighted assets with the goal of restricting banks’ freedom to determine capital requirements.