In connection with the bankruptcy of a regional savings and loan association at the beginning of the 1990s, a whole string of problems under the Swiss law governing the liquidation and capital reconstruction of banks came to light. The Swiss Federal Council has now proposed to parliament a revision of the law that would create a capital reconstruction and liquidation proceeding tailored to individual cases and would also coordinate the areas of capital reconstruction and liquidation with bank supervision. The new law would place all three areas under the exclusive jurisdiction of the Swiss Federal Bank Commission (SFBC).
If a bank is at risk of insolvency, the SFBC may first, in lieu of liquidation, resort to protective measures. These include the issuance of orders to the executive bodies of the bank, the withdrawal of the power of representation or their removal from office. In the future the SFBC will also be able to order a moratorium or suspension of maturity, an act that is reserved under current law to the court or the Federal Council.
Bearing in mind the loss of confidence that becomes an issue in the capital reconstructions of banks, the law does not impose a formalized proceeding but, rather, specifies guiding principles. First, the SFBC must review whether a capital reconstruction of the bank is possible. If so, the SFBC will appoint a capital reconstruction agent who will draw up a capital reconstruction plan. Liquidation will be ordered if this is requested by creditors representing more than half of the unprivileged claims. In contrast, the capital reconstruction plan only requires the approval of the SFBC.
If a capital reconstruction has no chance of success or has failed, the bank must be liquidated. The liquidation provisions in the draft foresee a speedy proceeding that should not entail a great deal of cost. Because the SFBC will already have obtained adequate knowledge about the relevant bank through the capital reconstruction, the liquidation proceeding is likewise under the supervision of this agency. Thus, the SFBC, by means of an order, commences the bankruptcy proceeding for a bank, appoints liquidators and supervises them. As under current law, deposited assets will be segregated and will not be drawn into the liquidation estate.
In addition, through the revision of law, the protection of investors will be enhanced. Bankruptcy privilege will be expanded to cover all bank deposits. Privileged deposits are to be protected by means of deposit insurance, which will be introduced by the banks by means of self-regulation. In this manner, Swiss investor protection will be comparable with that in the EU.