Swiss Federal Council requires banks to hold additional capital for residential mortgages

During its meeting on January 26, 2022, the Federal Council approved the proposal of the Swiss National Bank (SNB) to reactivate the countercyclical capital buffer. From 30 September 2022, banks must hold additional capital of 2.5% for residential mortgages, in order to combat the increasing risks on the mortgage and real estate markets.

During its meeting on  January 26, 2022 and at the request of the SNB, the Federal Council decided to reactivate the countercyclical capital buffer (CCyB), in light of developments on the real estate and mortgage markets. From September 30, 2022, banks will be required to hold additional capital amounting to 2.5 % of their risk-weighted positions that are directly or indirectly backed by residential real estate in Switzerland.

The countercyclical capital buffer strengthens banking sector resilience in the event of corrections resulting from imbalances on the mortgage and real estate markets. At the same time, it helps to prevent the situation on these markets from deteriorating further.

Reasons for the reactivation

The countercyclical capital buffer was deactivated at the start of the COVID-19 crisis in March 2020, in order to give banks the greatest possible room for manoeuvre in corporate lending. Since then, the vulnerabilities on the mortgage and residential real estate markets have increased. For example, both the volume of mortgage credits and the prices for residential real estate have risen by more than can be explained by fundamentals such as rents or incomes. The risk of an abrupt correction on the mortgage and real estate markets triggered by an unexpectedly sharp rise in interest rates, for example, has increased. Such a correction would have serious repercussions for borrowers, the banking sector and the Swiss economy. Moreover, compared to the start of the pandemic, the economic situation has improved and the uncertainty about companies’ access to credit has decreased considerably. At the moment, there are no signs of a corporate credit crunch.

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