On Thursday, the Swiss Federal Council started consultation on its planned public liquidity backstop (PLB) for systemically important banks (SIBs), reducing the industry engagement period to June 21, 2023. The executive authority said that it had decided to wrap this up much quicker due to the urgency of the matter.

The Council first introduced the PLB in March last year as part of its plans to strengthen liquidity of SIBs in the country during the resolution or winding down process. At the time, the Swiss executive branch tasked the Federal Department of Finance with preparing the consultation draft by mid-2023.

According to Switzerland’s Banking Act, SIBs such as Credit Suisse, UBS and Raiffeisen, perform critical functions such as domestic deposits as well as lending and payment transactions. The backstop is a third-level state-backed liquidity provided to these types of banks should they run into financial trouble and unable to meet their financial obligations after exhausting their liquid assets. The public liquidity backstop becomes available once the second emergency liquidity provided by the Swiss central bank proves insufficient.

Swiss Govt. Reacts to Credit Suisse Crisis

The Federal Council’s decision comes after the recent trouble with top Swiss lender Credit Suisse. During the height of the recent United States banking crisis, the already troubled banking giant saw its shares plunge to an all-time-low. To prevent a banking crisis, the Swiss apex monetary authority provided emergency liquidity rescue to the sum of CHF 109 billion for Credit Suisse and brokered a speedy takeover of the lender by rival UBS.

In a statement released on Thursday, the Swiss executive branch noted that it used emergency laws during the period to introduce the framework for a public liquidity backstop in its effort “to prevent a disorderly bankruptcy of Credit Suisse.” These provisions have now been added to the draft amendments to the country’s Banking Act seeking to introduce the PLB.

“To avoid them expiring, the Federal Council must submit a draft to Parliament within six months, in order that it be transferred into ordinary law,” the Council added.

“This draft is intended to simultaneously transfer into ordinary law not only the framework for a PLB instrument as introduced in March 2023 by the Federal Council via ordinance, but also other measures introduced at that time and aimed at supporting the takeover of Credit Suisse by UBS,” the executive branch further explained.

Switzerland started enforcing rules for SIBs in 2012, requiring higher capital and liquidity requirements in a bid to reduce the impact that the failure of one of the top banks could have on the Swiss economy. The rules have been tightened over the years. However, the government is now looking to introduce the PLB.

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