Swiss banks ordered to hold extra capital to avert property risks

Real estate prices surged during the pandemic in Switzerland and the Swiss National Bank has repeatedly sounded the alarm bell. Keystone/Urs Flüeler

The government has decided to reactivate a capital requirement buffer in an effort to fight an increasing risk on the mortgage and real estate markets.

In line with a request by the country’s central bank, the government on Wednesday ordered Swiss banks to hold additional capital of 2.5%.

The measure will take effect from the end of next September, according to a finance ministry statementExternal link.

The government cautioned that an unexpected sharp rise in interest rates would have “serious repercussions for borrowers, the banking sector and the Swiss economy”.

The so-called counter-cyclical capital buffer was suspended at the start of the Covid pandemic in March 2020 to give banks the necessary flexibility in corporate lending.

Since then, the risks on the mortgage and residential real estate markets have increased, prompting an extraordinary rise in the volume of mortgage credits and property prices, the statement added.

The government also said the overall economic situation in Switzerland had improved and there was no sign of a corporate credit crunch for companies.

Property prices in countries around the world surged during the pandemic and the Swiss National Bank has repeatedly warned that housing prices have become increasingly unaffordable.

Switzerland’s counter-cyclical capital buffer was initially introduced as part of reforms to make banks more resilient in the wake of the 2008 financial crisis.