The Swiss National Bank (SNB) has reiterated calls for stricter bank regulations, emphasizing the role of the countercyclical capital buffer in mitigating financial stability risks. Speaking at the University of Basel, SNB Vice President Antoine Martin underscored the interplay between monetary policy and financial stability, noting that resilient banks are essential for both objectives.
Martin acknowledged the harmonious relationship between price stability and financial stability, stating that a stable financial system supports macroeconomic stability and, in turn, price stability. However, he highlighted a practical challenge: the misalignment between monetary policy cycles and financial cycles. For instance, a policy rate set to achieve price stability may inadvertently fuel imbalances in the real estate market, necessitating complementary tools to address financial stability risks.
The SNB currently maintains the countercyclical capital buffer at its statutory maximum of 2.5% of risk-weighted assets, restricted to domestic residential mortgages. This buffer was temporarily deactivated during the pandemic to support credit flows. Martin suggested exploring a 'positive, cycle-neutral' countercyclical capital buffer, citing international precedents, as a potential enhancement.
The SNB also reiterated its stance on systemic risk, warning that a collapse of Credit Suisse in 2023 would have triggered severe global financial and real-economy repercussions. In this context, Martin supported the federal government’s proposals to strengthen the Too-Big-To-Fail (TBTF) framework, particularly by fully backing foreign subsidiaries with Common Equity Tier 1 capital.
Martin’s remarks also reflected on Switzerland’s prolonged period of ultra-low and negative interest rates from 2009 to 2021, which amplified vulnerabilities in the mortgage and real estate markets. The SNB is considering raising the statutory ceiling for the countercyclical capital buffer as a preventive measure. While TBTF adjustments would primarily affect systemically important banks like UBS, changes to the capital buffer would impact all institutions active in domestic mortgage lending.
