The Federal Banking Commission (FBC) has held that preferred securities issued by fully-consolidated subsidiaries of Swiss banks qualify as core capital (Tier 1) of the parent bank on a group level. While in principle the FBC has thus adopted the requirements set up by the Basle Committee on Banking Supervision, there are some peculiarities to observe.
The qualification as Tier 1 capital is subject to a so-called dividend-stopper clause, pursuant to which dividend payments on the preferred capital of the issuing subsidiaries will be automatically stopped if the Swiss capital adequacy requirements applicable to the parent bank on a non-consolidated or a consolidated basis are no longer met.
The repayment of preferred securities requires, in any case, the prior approval of the FBC. In addition, the bank has to disclose in any written public statement regarding its core capital the portion of preferred securities or other innovative Tier 1 capital instruments. The FBC underlines the importance of full transparency regarding the different components of the capital resources of a bank. The sum of all capital instruments which are characterized as innovative, in particular preferred securities, may not exceed 15% of the total Tier 1 risk-based capital on a consolidated basis.
Finally, the Swiss Admission Board has changed its directive on debt securities subject to foreign law. Under the modified directive, securities issued by Swiss and foreign banks or insurance companies for the sole purpose of creating Tier 1 capital may be listed on the Swiss Exchange even if the securities are not subject to Swiss law and a Swiss forum.