Learning Lessons and Implementing a New Approach to Bank Insolvency Resolution in Switzerland

On 3 October 2003 the Swiss Parliament adopted a new legal framework for resolving bank insolvencies which will enter into force in early 2004. This chapter discusses this proposed new framework in the light of the approach proposed in Mayes, Halme and Liuksila (2001) (‘MHL proposal’). Under the new Swiss framework, Switzerland’s bank supervisor, the Swiss Federal Banking Commission (SFBC) will assume functions traditionally exercised by the bankruptcy courts. The proposed reorganization regime will offer an alternative to the outright compulsory liquidation of banks that are no longer able to comply with solvency requirements. In keeping with the general principle that private sector problems require private sector solutions the regime excludes any form of public assistance. In the case of the cantonal banks it is however generally the canton as main shareholder that provides the necessary funds for a recapitalization or the guaranteeing creditors’ claims. The characteristics of the Swiss financial sector with its large number of small banks and two major ‘global players’, UBS and Credit Suisse, illustrate the impossibility of drawing up a bank insolvency framework that is ‘one size fits all’.