SNB names PostFinance fifth ‘too big to fail’ bank

Postfinance is Swiss market leader in transaction payments Keystone

Postfinance, the financial services arm of Swiss Post, has been designated too big to fail by the Swiss National Bank (SNB). It thus joins UBS, Credit Suisse, Raiffeisen and the Zurich Cantonal Bank. 

In August 2014, the SNB began assessing whether PostFinance was too big to fail and which of its functions were of systemic importance. In its decision of June 29, the SNB declared PostFinance to be a bank that was “systemically relevant”. 

This means that the bank is so important to the wider economic system in Switzerland that its demise would result in unacceptable economic damage. 

The decision was taken after consultation with PostFinance and the Swiss Financial Market Supervisory Authority (FINMA) and has entered into legal effect. 

The reasons given were the financial institution’s significant status in domestic deposit services and its strong position in payment transactions in Switzerland.  

On June 30 Postfinance had a balance sheet total of CHF116 billion ($121 billion) and was a market leader in transaction payments. It is the semi-autonomous financial arm of the Swiss post office that was granted a licence in 2013 to trade as an independent entity. 

However, all of its shares are for the time being held by the state-owned post office.

Structural changes 

According to the banking law, the system relevance of a bank depends on its size, its interconnection with the finance system and the economy as well as the short-term substitutability of its services. 

Banks are also deemed too big to fail if their collapse would significantly damage the Swiss economy and financial system. 

As a next step, PostFinance, along with FINMA, will begin to implement the specific requirements regarding equity, liquidity, risk concentration and the development of contingency plans. 

PostFinance chief executive Hansruedi Köng said at a press conference that business would continue as normal despite the new status. He said the bank would not need to raise any new capital as its capital ratio already exceeded 20%.

Switzerland’s two biggest banks, UBS and Credit Suisse, are well advanced in implementing too big to fail structural changes that split different divisions into separate legal entities, in some cases located in different countries.