The Swiss Financial Market Supervisory Authority (FINMA) has quietly joined the growing parade of western nations who have quietly re-written banking laws to allow depositor bail-ins upon the next banking crisis.
If Switzerland, the once ultimate safe haven for banking deposits across the world is preparing to confiscate depositors funds, there truly is no protection anywhere other than physical gold and silver in your own possession!
In the event that a bank is failing or where its capitalization is no longer adequate, the Swiss Financial Market Supervisory Authority (“FINMA”) may take measures to improve such bank’s financial viability rather than liquidating it. “Loss absorption” and “bail-in” are important instruments to support any such measures.
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The Swiss document begins by advising that the FINMA now has legal authority to confiscate depositor funds, thanks to a revision of the Banking Act of 1934, completed in 2011, as well as the revision of the Bank Insolvency Ordinance completed Nov 1st 2012:
In the event that a bank is failing or where its capitalization is no longer adequate, the Swiss Financial Market
Supervisory Authority (“FINMA”) may take measures to improve such bank’s financial viability rather than
liquidating it. “Loss absorption” and “bail-in” are important instruments to support any such measures. This
is now possible as a result of a revision of the Banking Act of 8 November 1934 (the “Banking Act”) in 2011 and
the taking effect of a revised Bank Insolvency Ordinance on 1 November 2012 (the “Bank Insolvency Ordinance”)
and of a revised Capital Adequacy Ordinance on 1 January 2013 (the “Capital Adequacy Ordinance”).
The document states that The Banking Act now grants discretion to FINMA regarding depositor bail-in measures:
Under the Banking Act, if there are concerns that a bank is
over-indebted or if a bank does not meet liquidity or regulatory
capital requirements, the FINMA may as appropriate:
(i) take protective measures; (ii) initiate bank reorganization
proceedings; or (iii) order the liquidation of the bank
(bankruptcy). The Banking Act grants significant discretion
to FINMA in this context. This includes, inter alia, ordering
a bank moratorium, a maturity postponement or “bail-in”
And in the scope of bail-in measures, states that bail-ins are to be a measure of last resort (translation: we’ll make this sound unlikely until the banks lose their first franc):
The loss absorption measures described above relate to
capital instruments issued by the bank. In addition, the
revised procedural rules as specified in the secondary legislation
to the Banking Act applicable in a bank reorganization
context (i.e. if FINMA believes that the bank may be successfully
reorganized or if at least part of the business of the failing
bank may be continued), as enacted by FINMA, provide
for the competence of FINMA to convert or write-off other
debt (even in the absence of any contractual provision to that
effect in the arrangement governing such debt) if and to the
extent necessary to allow the bank to meet its regulatory
capital requirements after completion of the reorganization
Such bail-in is designed to be available as a
measure of “last resort” to be taken in the event that the
loss absorption under the capital instruments issued by the
bank is not sufficient to restore the required capitalization of
the failing bank and if the creditors are likely to be better off
than in an immediate insolvency of the bank.
The bail-in must be specified in the reorganization plan,
which must be approved by FINMA and – except for banks
of systemic importance – also by a majority of non-privileged
creditors (calculated on the basis of the claim
amounts). If such approval cannot be obtained, the bank
would be liquidated in bankruptcy proceedings.
In the event that FINMA only applies protective measures,
but does not consider any reorganization measures as necessary
or adequate, a bail-in could not occur as one of such
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