The aim of such rules would be, in a crisis situation, to split off those units of a bank that are important for the functioning of the economy and wind down the rest. This does not mean, however, that this type of approach would question the universal bank model as such. The SNB is aware that rules governing the organisational structure of large financial institutions are not easy to draw up. Legal and operational aspects would therefore need to be analysed with the requisite care and any regulations drawn up in close collaboration with the banks affected. We are convinced that everything needs to be done to implement one of these approaches for facilitating the wind-down of large financial institutions. If significant progress is not achieved within a reasonable time frame, measures that address the size of the banks should also be examined. One way in which the size of a bank can be influenced is through capital regulations. Capital requirements that are dependent upon size reduce a bank’s incentive to inflate its balance sheet without restraint. Measures with a direct impact on the size of banks are also conceivable. A size restriction would of course be a major intervention in an institution’s corporate strategy. Naturally the SNB is aware that there are advantages to size. For this reason, the advantages and disadvantages of such a measure would have to be examined and weighed up very carefully.
Their capital base is high by historical standards and they were able to build up their liquidity reserves last year. However, for these banks, too, the economic downturn will represent an increasing challenge. The outlook for the banks is also shaped by the negative forecasts for the entire world economy. These suggest a substantial deterioration in credit quality – including for  1  The figures published in our publication, Banks in Switzerland, are reported at parent company level, not at group, or consolidated level. According to these figures, the total loss for the big banks amounted to some CHF 38 billion. Cf. press release of 18 June 2009 on Banks in Switzerland for further details. BIS Review 77/2009  1  Switzerland. Consequently, increasing loan losses, substantial reductions in earnings and a deterioration in the capital situation may be expected for a large number of banks. However, cantonal, regional and Raiffeisen banks appear in relatively good shape to withstand these negative developments. The situation for the big banks appears more difficult. In addition to the still sizeable market risks, they face significant credit risks overall. Simple comparisons with earlier crisis periods show that potential losses on traditional lending are high, when set in relation to the capital cushion. The longer and deeper the recession, the greater these potential losses will be. In our basis scenario we expect the economy to recover gradually as of 2010, both internationally and in Switzerland.