The Swiss Federal Council discussed a plan to create a financial support system for big banks that are important to the economy. They shortened the time period for the public to give feedback on the plan from June 21, 2023.
The Swiss government introduced the Public Liquidity Backstop (PLB) in March 2020 in an effort to fortify the financial solvency of certain Systemically Important Banks (SIBs) in the chance of liquidity issues during insolvency. The Federal Department of Finance was appointed to organize the consultation draft by the middle of 2023.
These SIBs, including Credit Suisse, UBS and Raiffeisen, are vital to domestic services such as deposits, loans, and payments. This backstop is the last resort to ensure those banks have enough liquidity should their other funds prove inadequate. The Swiss central bank will initially offer secondary liquidity before the state provides the final PLB.
The Swiss government recently stepped in to help Credit Suisse, one of the country’s biggest banks. During a difficult period in finance, their stock had gone down to a record low.
To stop the chance of economic chaos, the Swiss Federal Council gave the bank CHF 109 billion in emergency liquidity and let a competing lender, UBS, take it over. The Swiss executive branch released a statement indicating that it used emergency laws to create a framework that could ensure public liquidity for Credit Suisse and prevent bankruptcy.
This framework has now been added to the draft amendment to Switzerland’s Banking Act, referred to as Public Liquidity Backstop. To ensure this framework does not expire, the Council must submit a draft to Parliament within six months to be approved as a law.
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