Issuing information on stress tests conducted on the country’s two largest banks, Credit Suisse and UBS, to determine their resistance to a global recession, accompanied by a deterioration in the finances of European states, the Swiss Financial Market Supervisory Authority FINMA revealed that both banks would still have a solid capital base, with tier 1 capital ratios of at least 8%.

FINMA announced last autumn that it had been conducting various stress tests on Swiss banks since 2008, designed to assess the impact that a sharp deterioration in economic conditions might have on Swiss banks. Indeed, since the start of 2009, FINMA has conducted regular stress tests (analyses of potential loss) on the country's two largest banks.

According to the Swiss federal administration, analyses of this kind are a key component of FINMA’s normal supervisory activities. It notes that FINMA requires Credit Suisse and UBS to have sufficient excess capital and liquidity to enable them to absorb unforeseen events at any time. The large banks should therefore have a tier 1 ratio of at least 8% even under such stress scenarios, it points out. If this requirement were not met, FINMA would work with the institution in question to consider reducing its risk positions and/or strengthening its capital base and would then instruct suitable measures accordingly, it adds.

The stress scenarios are developed in conjunction with the Swiss National Bank. The latest scenario covered different regions of the world over a two-year period. It assumed a global recession, accompanied by a slump in prices on the financial and real estate markets. Developments in Europe had also been added, with specific and very sharp shocks assumed for some European countries. In view of UBS and Credit Suisse's relatively low exposure to these countries, however, the impact of these particular shocks was shown to be small.

The Swiss federal administration notes that although FINMA’s approach is similar to the Committee of European Banking Supervisors’ (CEBS) approach in its design, the stress test results are not. Switzerland's specificity in having large banks of great systemic importance requires the design of particularly severe scenarios, it explains.