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”).
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” measures.