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Swiss regulator backs big-bank resilience as deadline for emergency plans looms

Swiss banks UBS Group AG and Credit Suisse Group AG are resilient and comply with global postcrisis capital requirements, the Swiss National Bank's Vice Chairman Fritz Zurbrügg said in a Dec. 12 speech.

The banks are, however, required to submit emergency plans designed to address too-big-to-fail rules by the end of 2019. The Swiss Financial Market Supervisory Authority is assessing whether the plans submitted by the two banks prove that they would be able to maintain their systemically crucial operations in the event of a crisis.

Zurbrügg said that the Federal Department of Finance, in coordination with FINMA and the central bank, is evaluating whether the existing liquidity requirements for the two big banks are sufficient to cover estimated funding costs in case a crisis hits, or whether regulatory adjustments are needed.

Zurbrügg said domestically focused banks saw a decline in their interest rate margins in the first half of 2019 and still face the challenge. Many of these banks responded to the challenge by making efficiency improvements, such as focusing on digital lending, or by raising their risk appetite.

Affordability risks of new mortgages funding residential property are high and, the central bank noted, adding however that its stress tests show the resilience of domestically focused banks is "adequate overall."

With regard to climate change, Zurbrügg said there could be a longer run threat to financial stability and added that the regulator is focusing on how such a risk could affect the Swiss banking system.

Currently, the SNB believes there is a low chance of climate-related risks threatening the banking system's stability. But the situation may change over time. The central bank will continue to monitor developments and review its assessment as a matter of priority, Zurbrügg added.