BERN (Reuters) – The Swiss government on Thursday moved to speed up work on extending a public liquidity backstop Credit Suisse received access to in March under emergency rules to other systemically important banks and make it a permanent part of regulatory framework.
Provision of state-guaranteed cash for such banks were they to fall in distress was proposed over a year ago with the finance ministry tasked with preparing draft legislation by mid-2023.
But a global banking turmoil and a deepening crisis of confidence in Credit Suisse prompted Swiss authorities to authorize the central bank in March to provide 200 billion Swiss francs ($225.00 billion) in liquidity to the nation’s no. 2 lender in emergency measures.
Up to 100 billion francs was provided via a public liquidity backstop to Credit Suisse, which by the end of April had drawn 10 billion of the loans.
The stricken bank had already tapped a 50 billion franc liquidity lifeline under existing arrangements.
The consultation on making such liquidity backstop available to the nation’s five systemically important banks (SIB) will start on May 25, the government said in a statement.
The country’s number one lender UBS, Credit Suisse now being absorbed by UBS as part of a government-orchestrated rescue, are SIBs according to the Swiss National Bank.
Unlisted lenders Raiffeisen Group, Zuercher Kantonalbank and PostFinance are also SIBs.
Measures were needed to improve the resilience of these banks because of their vital roles in taking domestic deposits, lending and carrying out payment transactions.
“If a SIB gets into distress or fails, this can cause considerable turmoil in the financial system and significant economic damage,” the government said.
It said the consultation on the public backstop would be shortened due to the urgency of the matter and will last until June 21.
Banks, business associations and other affected institutions will be asked for their input.
Other regions such as the European Union, the United Kingdom and the U.S. have already created the conditions to provide liquidity support to systemically important banks in an emergency.
It also said a broader review of the regulatory framework announced after Credit Suisse’s takeover was under way.
($1 = 0.8889 Swiss francs)
(Reporting by Tomasz Janowski and Oliver Hirt; Editing by John Revill)