The legislation of 2011: Articles 7 to 10a of the Banking Act

From consultation to the final vote

The Federal Council moved quickly. On 13 October 2010 it instructed the finance department to prepare a consultation draft, and on 22 December 2010 it opened the consultation.¹ The dispatch to Parliament followed in April 2011. In presenting it, Widmer-Schlumpf stressed the special situation of Switzerland, where the balance sheet of a single bank exceeded the country’s entire annual economic output. The Social Democrats, the Greens and the unions supported the direction of the bill but wanted more, while the Swiss People’s Party described it as unbalanced and incomplete. The Liberals and Christian Democrats supported the government.²

The parliamentary procedure took less than six months, a remarkable speed for a significant revision of the Banking Act. The Council of States dealt with the bill first in the summer session of 2011. The debate revealed a number of fault lines. The left proposed an explicit leverage ratio of between 5 and 10 per cent of unweighted assets and limits on proprietary trading, both of which were rejected. A Social Democratic proposal to cap variable pay at 50 per cent of total remuneration also failed, as did a Green proposal to introduce a separation of banking activities on the model of the American Glass-Steagall Act. Parliament declined to require a preventive structural reorganisation of the banks and chose binding emergency plans as its instrument. Two changes proposed in Parliament had lasting institutional consequences: the power to designate systemically important banks was transferred from the Federal Council to the Swiss National Bank, and the implementing ordinance was made subject to parliamentary approval on its first enactment. After several rounds of the procedure for resolving differences and a conciliation conference, both chambers adopted the bill on 30 September 2011.³

The Federal Council brought the amended provisions into force on 1 March 2012, by a decision of 15 February 2012. At the same time the stamp duty legislation was amended to promote the issuance of contingent convertible bonds from Switzerland: the issuance duty on debt capital was abolished and the conversion of CoCos into equity was exempted from stamp duty.⁴ The withholding tax, the second obstacle identified by the commission, was addressed in a separate step. From 1 January 2013, interest on certain TBTF instruments was exempted from the federal withholding tax. The exemption was limited in time and has been extended repeatedly. The most recent extension, approved by Parliament on 19 December 2025, prolongs it until the end of 2031. The Federal Council has announced that it wishes to make the exemption permanent in its future banking stability legislation.⁵

The structure of the new provisions

The new provisions were inserted into the Banking Act as a separate chapter headed “Systemically important banks”. Article 7 defines systemically important banks as banks, financial groups and bank-dominated financial conglomerates whose failure would cause considerable damage to the Swiss economy and the Swiss financial system. It also states the purpose of the provisions: to reduce the risks that such banks pose to the stability of the financial system, to ensure the continuation of economically important functions and to avoid state assistance.⁶ The triad of stability, continuity of functions and avoidance of public support is the key to interpreting the whole chapter. Each later measure, from the leverage ratio to the bail-in, can be read as an attempt to reconcile these three aims.

Article 8 sets out the criteria of systemic importance and the procedure for designation. The decisive element is the importance of a bank’s functions for the Swiss economy, particularly in the domestic deposit and lending business and in payment transactions, together with the difficulty of replacing those functions at short notice. The criteria include the bank’s size, its interconnectedness with the financial system and the economy, the substitutability of its services, the volume of protected deposits that exceed the resources of the deposit protection scheme, the ratio of its total assets to Swiss gross domestic product and its risk profile, which in turn depends on the business model, the balance sheet structure, the quality of assets, liquidity and leverage. The Swiss National Bank designates, after consulting FINMA, which banks are systemically important and which of their functions are systemically important.⁷

Article 9 lists the special requirements that systemically important banks must meet. They must hold capital that is higher, and of better quality, than that required of other banks, so that they can absorb losses. They must hold liquidity that allows them to withstand shocks better than other institutions. They must diversify their risks so that their concentration risks, including exposures to other systemically important institutions, remain limited. Finally, they must maintain an emergency plan that ensures the continuation of their systemically important functions in the event of impending insolvency.⁸ The requirements are graduated according to the degree of systemic importance, with the details fixed by the Federal Council in the implementing ordinances. A progressive element, in which requirements increase with size and market share, was part of the scheme from the beginning. It reflected the commission’s view that the implicit subsidy grows disproportionately with the size of the bank.

Article 10 concerns the application of these requirements to the individual bank. FINMA determines by formal ruling the specific requirements that a designated bank must meet. The bank must demonstrate that it can maintain its systemically important functions in the event of impending insolvency. If it fails to do so, FINMA orders the measures that are necessary.⁹ This provision is where the regime becomes coercive. The emergency plan is initially a document prepared by the bank, but the bank bears the burden of showing that it works, and FINMA may order changes to the legal structure, to the organisation or to intra-group relationships if the demonstration fails. In the first years of the regime, the provision also served as the legal basis for the rebates on capital requirements that FINMA could grant if a bank improved its resolvability beyond the statutory minimum.

Article 10a, finally, deals with remuneration. If a systemically important bank or its parent company receives state support from federal funds, the Federal Council may restrict the payment of variable remuneration and order adjustments to the remuneration system for the duration of the support.¹⁰ The provision was the only concession to the intense public anger over bonuses that had followed the UBS rescue. It reaches only banks that are actually receiving state aid and gives the Federal Council a discretionary power. The provision acquired practical relevance in March 2023, when the Federal Council used it in connection with the state support granted for the takeover of Credit Suisse, a matter that belongs to the following chapter.

The ordinance and its parliamentary approval

The details of the capital requirements were set out in amendments to the Capital Adequacy Ordinance and the Banking Ordinance. Because Parliament had reserved the right to approve the implementing ordinance on its first enactment, the Federal Council’s text went back to the chambers in 2012. On 18 September 2012 the National Council, as the second chamber, approved the ordinance by 128 votes to 40 with 5 abstentions. The ordinance entered into force on 1 January 2013, although the banks were given until 2018 to comply with the full capital requirements. The debate in the National Council showed that the consensus of 2011 had not deepened. A Social Democratic member called the ordinance disappointing and a Green speaker said it contained only the bare minimum. The Liberals, for their part, stressed that Switzerland was the first country to adopt stricter rules after the crisis. The leverage ratio fixed in the ordinance for the two big banks was 4.56 per cent, a figure that critics on the left compared with calls for 10 per cent.¹¹

The term “Swiss finish”, used by supporters and critics alike, captured the spirit of the regime. Switzerland would follow the international standards of the Basel Committee but add a national layer on top of them. The political justification was the exceptional size of the two banks relative to the Swiss economy, which no other country of comparable size faced to the same extent. The economic cost of the Swiss finish, in the form of higher funding costs for the banks and potentially lower lending, became a recurring theme of the banking lobby. By the middle of the decade the debate had moved from principle to calibration.

Notes

1. Ambühl and Lewrick (as above), for the decision of 13 October 2010; Année politique Suisse, “Teilrevision des Bankengesetzes (‘Too big to fail’-Vorlage; BRG 11.028)”, https://politchronik.swiss/de/prozesse/15184-teilrevision-des-bankengesetzes-too-big-to-fail-vorlage-brg-11-028, for the consultation opened on 22 December 2010. ↩
2. swissinfo.ch, “Gesetz gegen künftiges ‘too big to fail’” (as above). ↩
3. Année politique Suisse, “Teilrevision des Bankengesetzes (‘Too big to fail’-Vorlage; BRG 11.028)” (as above). The chronicle also records the rejection in the Council of States of a proposed five-year exemption from withholding tax for interest on CoCos, which returned later in a different form. ↩
4. G. Kuhn Rechtsberatung Treuhand, “Ab 01.03.2012: Neues Bankengesetz tritt in Kraft (‘Too big to Fail’-Bestimmungen)”, https://gkuhn.ch/ab-01032012-neues-bankengesetz-tritt-in-kraft-qtoo-big-to-failq-bestimmungen/. The note summarises the Federal Council’s press release of 15 February 2012. ↩
5. Federal Department of Finance, “Verlängerung der Ausnahmebestimmungen für Too-big-to-fail-Instrumente bei der Verrechnungssteuer bis Ende 2031”, 30 April 2026, https://www.egris.admin.ch/de/newnsb/N4Z_L86thMG7IPkagZIAm. The exemptions cover interest on instruments such as bail-in and write-off bonds. ↩
6. Federal Act on Banks and Savings Banks (Banking Act, BankA), SR 952.0, Art. 7, in the English translation published by KPMG Switzerland, status as of 1 January 2024, https://assets.kpmg.com/content/dam/kpmgsites/ch/pdf/ch-banking-act-en.pdf. The official consolidated text is published on Fedlex (https://www.fedlex.admin.ch/eli/cc/51/117_121_129/de). ↩
7. Banking Act, Art. 8, KPMG translation (as above). ↩
8. Banking Act, Art. 9, KPMG translation (as above). ↩
9. Banking Act, Art. 10, KPMG translation (as above). ↩
10. Banking Act, Art. 10a, KPMG translation (as above). ↩
11. swissinfo.ch, “‘Swiss finish’ für Banken kann in Kraft treten”, 18 September 2012, https://www.swissinfo.ch/ger/swiss-finish-fuer-banken-kann-in-kraft-treten/33540966. The article gives the range of 14 to 19 per cent of risk-weighted assets for the two big 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.