Liquidity: from the Liquidity Ordinance to the special requirements

The Liquidity Ordinance and the liquidity coverage ratio

Liquidity was the second field of the expert commission’s package, but for several years it received less public attention than capital. The events of 2007 and 2008 had shown that banks rarely fail because their capital is exhausted in an accounting sense. They fail when creditors and depositors withdraw funding faster than assets can be sold or pledged. The Banking Act of 2011 required systemically important banks to hold liquidity that enabled them to withstand shocks better than other banks. The Federal Council implemented this requirement, together with the general liquidity rules for all banks, in the Liquidity Ordinance of 30 November 2012.¹ The special liquidity requirements for the big banks initially took the form of a separate regime based on stress scenarios developed by FINMA and the SNB in the years after 2008.

The international liquidity coverage ratio, the LCR, was introduced into Swiss law with effect from 2015. The LCR requires a bank to hold enough high-quality liquid assets to cover its net cash outflows over a thirty-day stress period. After a phase-in, the Swiss authorities regarded the full LCR requirement as implemented by 2019.² For the systemically important banks the LCR became the common metric on which additional requirements could be built. Its thirty-day horizon, however, reflected the experience of the 2008 crisis, when the run on wholesale funding unfolded over weeks. The experience of 2023 would show that a run in the age of digital banking can be far faster.

The net stable funding ratio

The second Basel liquidity standard, the net stable funding ratio, took longer to implement. The NSFR requires a bank to fund its long-term assets with a minimum amount of stable funding, that is, with capital and liabilities that are expected to remain with the bank for more than a year. The corresponding amendment to the Liquidity Ordinance, adopted by the Federal Council on 11 September 2020, entered into force on 1 July 2021.³ Switzerland applied the NSFR to almost all banks in accordance with the principle of proportionality, with simplified reporting for the smaller categories. The timing followed the European Union, where the NSFR had been introduced through the amendment of the Capital Requirements Regulation.⁴

The special liquidity requirements of 2022

The Federal Council’s evaluation report of 2021 identified a need for action in the area of special liquidity requirements for systemically important banks and announced a consultation. The International Monetary Fund had noted in its assessment that the banks’ recovery and resolution capacity still needed to be improved, with particular emphasis on liquidity in resolution.⁵ The resulting amendment to the Liquidity Ordinance was adopted on 3 June 2022 and entered into force on 1 July 2022. It required systemically important banks to hold enough liquidity to absorb liquidity shocks, to cope with operational disruptions and to cover the costs of a possible restructuring or wind-down. The Federal Council presented the requirements as the foundation for a planned public liquidity backstop.⁶

The sequence reveals a gap in the original regime. For more than a decade after 2011, Switzerland had required its systemically important banks to hold large amounts of loss-absorbing capital for resolution, but it had not ensured that a bank in resolution would have access to enough liquidity to survive the weeks after a bail-in. A recapitalised bank may still face a run, because creditors and depositors do not know at once whether the recapitalisation has succeeded. Other jurisdictions had addressed this problem by giving the central bank or a resolution fund the power to lend to a bank in resolution with state backing. Switzerland had no equivalent instrument when the crisis of 2023 broke. The public liquidity backstop was introduced by emergency law in March 2023 and has since been the subject of a separate legislative project.⁷

Notes

1. Ordinance of 30 November 2012 on the Liquidity of Banks and Securities Firms (Liquidity Ordinance, LiqO), SR 952.06, bilingual edition, https://www.droit-bilingue.ch/de-fr/9/95/952.06-index.html. Under Art. 33, https://www.droit-bilingue.ch/de-fr/9/95/952.06-33-69.html, the ordinance entered into force on 1 January 2013, with Articles 5–10 applying to banks that are not systemically important from 1 January 2014. ↩
2. State Secretariat for International Finance (SIF), “Basel III”, https://www.sif.admin.ch/en/implementing-basel-iii. For the revision of the Liquidity Ordinance in 2015 that introduced the LCR, see also Loyens & Loeff, “Swiss Federal Council introduces NSFR for banks from July 2021”, https://www.loyensloeff.com/insights/news--events/news/swiss-federal-council-introduces-nsfr-for-banks-from-july-2021/. ↩
3. Federal Council, press release “Federal Council adopts implementation of net stable funding ratio”, 11 September 2020, https://www.admin.ch/gov/en/start/documentation/media-releases.msg-id-80373.html. ↩
4. Loyens & Loeff, “Swiss Federal Council introduces NSFR for banks from July 2021” (as above). ↩
5. Federal Council, Bericht zu den systemrelevanten Banken (as above), pp. 13 and 15. ↩
6. Federal Council, press release on the amendment of the Liquidity Ordinance for systemically important banks, 3 June 2022, https://www.admin.ch/de/nsb?id=89132. ↩
7. State Secretariat for International Finance (SIF), “Systemically important banks”, https://www.sif.admin.ch/en/systemically-important-banks, which records the Federal Council’s dispatch of 6 September 2023 on a public liquidity backstop for systemically important banks. ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of September 2025.