Resolution planning: emergency plans, recovery plans and resolvability

The Banking Insolvency Ordinance of 2012

The capital and liquidity requirements aim to make failure less likely. Resolution planning deals with the case in which failure occurs nonetheless. The legal foundation had been laid in part before 2011. Since the revision of the Banking Act in 2004, FINMA’s predecessor, the Federal Banking Commission, had possessed powers to order protective measures, restructuring proceedings and bankruptcy liquidation for banks.¹ The TBTF legislation extended these powers and gave them a new purpose. FINMA implemented the extended framework in its Banking Insolvency Ordinance of 30 August 2012, which entered into force on 1 November 2012 and replaced the earlier Banking Bankruptcy Ordinance. The new ordinance combined the rules on restructuring and bankruptcy in a single instrument. It allowed FINMA, in a restructuring, to ensure the continuation of individual important banking services without restructuring the entire institution, to convert debt into equity and to order other capital measures.²

The conversion of debt into equity by order of the authority, known as bail-in, became the central tool of the regime. Its logic is simple to state and difficult to execute. If a bank’s losses exceed its equity, the authority writes down the shares and converts designated debt instruments into new shares, so that the bank emerges with a restored capital base and new owners. Because the bank continues to operate, its systemically important functions are preserved and its counterparties are not forced into a disorderly liquidation. The creditors whose claims are converted bear the loss in place of the taxpayer. The Banking Act, in the version in force since 2023, lays down the order in which claims are to be converted: subordinated claims first, then bail-in bonds, then other claims excluding deposits, and deposits last.³

The single point of entry strategy

On 7 August 2013 FINMA published a position paper on the resolution of global systemically important banks. It proposed that the home supervisor should lead the coordination of group-wide recovery and resolution plans and that losses should be borne by creditors, including holders of senior bonds, who would contribute to the recapitalisation of the institution. FINMA advocated a single point of entry approach, in which resolution measures would be applied at the level of the top group company, with losses passed upwards from the subsidiaries to that company. This would make it possible to continue economically critical functions and to wind down foreign subsidiaries in an orderly manner, without the national ring-fencing of assets that had complicated earlier cross-border insolvencies. FINMA emphasised that its position was consistent with the recommendations of the Financial Stability Board and with the European Union’s draft guidelines published in June 2013.⁴

The single point of entry strategy required a particular group structure. A holding company at the top of the group would issue the bail-in bonds to external investors and pass the proceeds down to the operating subsidiaries in the form of internal loss-absorbing instruments. In a crisis, FINMA would convert the external bonds at the level of the holding company, while the losses of the operating subsidiaries would be transferred upwards through the internal instruments. Both big banks restructured their legal organisation accordingly. UBS established UBS Group AG as a new holding company in 2014 and transferred its Swiss retail and corporate business into a new subsidiary, UBS Switzerland AG, which began operating in 2015. Credit Suisse created Credit Suisse (Schweiz) AG, which took over the Swiss business in 2016, and established intermediate holding companies for its operations in the United States and the United Kingdom.⁵

These reorganisations are among the most visible legacies of the TBTF regime in Zurich. Creating new legal entities with their own boards, balance sheets and licences, they led to a large volume of internal contracts for services, data and staff. The emergency plan depended on the ability of the Swiss subsidiary to continue operating if the rest of the group was in resolution or bankruptcy. It therefore needed its own access to the personnel, systems and premises on which it relied, which in practice were often owned by other group companies. The creation of service companies that would continue to provide these resources in a crisis became a significant field of practice for lawyers and consultants in the city.

Three kinds of plan

Swiss practice distinguishes three plans. The recovery plan, prepared by the bank and approved by FINMA, describes how the bank can stabilise itself through its own efforts when in distress, with measures addressing both liquidity and capital across a range of scenarios. The emergency plan, also prepared by the bank, shows how its systemically important functions in Switzerland could continue without interruption if the bank were at risk of insolvency. FINMA reviews it annually and sets deadlines for remedying deficiencies. The resolution plan, finally, is prepared by FINMA itself and describes how it would restructure or wind down the bank if necessary.⁶ FINMA’s first public resolution report of 2020 summarised the same division: the bank’s recovery plan for self-stabilisation, its emergency plan for the continuation of Swiss systemically important functions, and FINMA’s global resolution plan for the group as a whole.

The three plans rest on different assumptions. The recovery plan presupposes that the bank’s management is willing and able to act while there is still time. The emergency plan presupposes that the Swiss business can be separated from the group. The resolution plan presupposes that a bail-in can be executed across borders, recognised by foreign courts and supervisors, and followed by a credible restructuring. The events of 2023 tested all three assumptions, and none of them emerged unscathed.

The assessment of resolvability

The public deadline for the emergency plans that the Federal Council had called for in 2015 was fixed by the revision of 2016 at the end of 2019. In February 2020 FINMA published its first comprehensive public resolution report. It found that Credit Suisse met the statutory requirements for a ready-to-implement emergency plan. The emergency plan of UBS was also judged effective, though with a qualification: UBS still had a material contingent liability of CHF 16.8 billion that had to be significantly reduced during 2020 and eliminated by the end of 2021. None of the three domestic banks was deemed fully ready for implementation. As for global resolvability, FINMA found that both big banks had made considerable progress, but that the preparatory measures were not yet adequate for a fully credible global resolution plan. It also explained the advantage of the single point of entry strategy: because resolution would take place at the level of the group holding company, FINMA could manage it alone without having to coordinate the resolution of multiple entities by foreign authorities.⁷

The resolution report of 2022 recorded further progress towards global resolvability, including improvements in the operational disentanglement of the groups, in the information systems for liquidity and capital, and in the ability to restructure after a bail-in. FINMA stated that its strategic aim was to complete the TBTF planning by 2024 at the latest. It added that some work, particularly on valuations and restructuring, would not be completed before the end of 2022.⁸ In the months before March 2023, the Swiss resolution framework thus appeared to be close to completion. The legal instruments existed, the capital had been raised, the group structures had been adapted and the emergency plans of the two big banks had been approved.

The Banking Act revision of 2021 and the new FINMA Insolvency Ordinance

A final piece of the pre-2023 framework was the revision of the Banking Act on insolvency, deposit protection and segregation. Adopted by Parliament on 17 December 2021, it was brought into force by the Federal Council on 1 January 2023. The revision anchored the insolvency provisions for banks, including the bail-in, at the level of a formal statute. It strengthened deposit protection by requiring faster payment of protected deposits and allowed cantonal banks to issue instruments designed for restructuring.⁹ The FSB welcomed the transfer of the bail-in provisions from FINMA’s ordinance to the Banking Act as a source of enhanced legal certainty for the resolution tools.¹⁰ Legal certainty mattered because the holders of bail-in bonds, many of them institutional investors in the United States and elsewhere, would be likely to challenge any conversion before foreign courts.

The consolidation of the insolvency rules continued after the period of crisis. On 1 October 2025 a new FINMA Insolvency Ordinance entered into force. It replaced the Banking Insolvency Ordinance of 2012 together with the corresponding ordinances for insurers and collective investment schemes, harmonised the procedural rules for the different categories of institution and implemented the amendments to the Banking Act in force since 2023.¹¹ The institutional machinery of resolution thus stands today on a statutory base and a single supervisory ordinance, whereas in 2012 it rested largely on an ordinance issued by the supervisor itself.

Notes

1. Alexandre Richa, “Le droit de l’insolvabilité bancaire est profondément modifié”, Centre de droit bancaire et financier (CDBF), 1 July 2004, https://cdbf.ch/217/: the revision of the Banking Act (Arts. 25–37g) entered into force on 1 July 2004 and made the Federal Banking Commission solely competent for protective measures, restructuring proceedings and bank bankruptcy, powers previously divided between the Commission and cantonal authorities such as the bankruptcy courts. ↩
2. FINMA, press release “Bankeninsolvenzverordnung-FINMA tritt in Kraft”, 22 October 2012, https://www.finma.ch/news/2012/10/mm-inkraftsetzung-bankeninsolvenzverordnung-finma-20121022/. ↩
3. Banking Act, Art. 30b, KPMG translation (as above). Article 30c sets out the requirements for the restructuring plan, including the principle that creditors must not be placed in a worse position than in an immediate bankruptcy. ↩
4. FINMA, press release “FINMA position paper on the resolution of systemically important banks”, 7 August 2013, https://www.finma.ch/en/news/2013/08/mm-pos-sanierung-abwicklung-20130807/; the paper itself is published as FINMA, Resolution of global systemically important banks, 7 August 2013, https://www.finma.ch/en/~/media/finma/dokumente/dokumentencenter/myfinma/finma-publikationen/diskussionspapiere/diskussionspapier-20130807-sanierung-abwicklung-global-systemrelevante-banken.pdf?la=en. ↩
5. UBS Group AG, “UBS announces successful implementation of UBS Switzerland AG”, ad hoc announcement of 14 June 2015, https://www.ubs.com/global/en/media/display-page-ndp/en-20150614-adhoc-20150614.html; on the listing of UBS Group AG as the new holding company in November 2014, Wikipedia, “UBS”, https://en.wikipedia.org/wiki/UBS; on the transfer of the Swiss business of Credit Suisse to the newly founded Credit Suisse (Schweiz) AG in November 2016, Wikipedia, “Credit Suisse (Schweiz)”, https://de.wikipedia.org/wiki/Credit_Suisse_(Schweiz). The Federal Council’s evaluation report of 2021 confirms that both Swiss G-SIBs had by then established holding companies with dedicated Swiss subsidiaries housing their systemically important functions (Federal Council, Bericht zu den systemrelevanten Banken, as above, p. 11). ↩
6. FINMA, “Switzerland’s ‘too big to fail’ regime for banks” (as above); FINMA, Resolution Report 2020 (as above), for the same threefold division. ↩
7. FINMA, Resolution Report 2020 (as above), pp. 2, 20 and 31. ↩
8. FINMA, Resolution Report 2022, https://www.finma.ch/en/enforcement/recovery-und-resolution-n/publikationen/resolution-report/archive/resolution-report/. ↩
9. LAW.CH, “BR setzt Änderung von Bankengesetz und Bankenverordnung auf 01.01.2023 in Kraft”, November 2022, https://law.ch/lawnews/2022/11/br-setzt-aenderung-von-bankengesetz-und-bankenverordnung-auf-01-01-2023-in-kraft/. ↩
10. FSB, Peer Review of Switzerland (as above), p. 21. ↩
11. FINMA, press release “FINMA publishes consolidated ordinance covering the insolvency proceedings at financial market institutions”, 4 September 2025, https://www.finma.ch/en/news/2025/09/20250904-mm-insolvenzverordnung/. ↩

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.