27 July 2017

How secure are my bank account balances if the bank declares bankruptcy?

Privileged deposits
If bankruptcy proceedings are opened against a Swiss bank or a Swiss securities dealer (hereinafter collectively referred to as "Bank"), deposits by natural and legal persons, up to a maximum amount of CHF 100,000 per person and Bank, are treated as privileged. The privilege covers deposits denominated in the name of the Bank customer, including medium term bonds deposited with the Bank in the name of the Bank customer. This includes, in particular, deposits from Bank customers on private, savings, investment, and current accounts. The privilege is linked to the claim and thus applies irrespective of the nationality or the domicile of the Bank customer. It applies to deposits at both Swiss and foreign branches of the Bank.
Deposited items such as shares are not considered deposits. They are the property of the Bank customer and are segregated in the bankruptcy of the Bank and released to the Bank customer.

Depositor protection does not apply to deposits with companies which operate as Banks without the approval of the Swiss Financial Market Supervisory Authority (FINMA).

Bankruptcy privilege
The privilege means that the affected deposits in the bankruptcy proceedings are allocated to the second bankruptcy class. They are thus covered by the proceeds of the bankruptcy, in particular after the employees' wage demands against the Bank (first class), but before the claims of the other creditors, e.g., suppliers from purchase and works contracts with the Bank (third class). For deposits above CHF 100,000, the excess amount is allocated to the third class.

Immediate payout from the liquid funds of the bank
The intention is that there be immediate payouts for the privileged deposits. Accordingly, the deposits concerned are paid out to the Bank customers outside the actual bankruptcy proceedings and to the exclusion of any offsetting.

The payout is made out of the liquid funds available at the Bank, with the amount being determined by FINMA in individual cases. If the Bank no longer has sufficient liquidity to pay out the privileged deposits immediately, the deposit guarantee described below is used as a further protection mechanism.

Payout in the framework of the deposit guarantee
The deposit guarantee is based on the principle of self-regulation. To this end, all Banks with privileged deposits at Swiss branch offices must join the "esisuisse" association.

As soon as FINMA has ordered the bankruptcy liquidation of a Bank, it informs  esisuisse and also provides information on the need for funds. Esisuisse then draws the corresponding contributions from the Banks and passes these on to the bankruptcy liquidator within 20 working days of receipt of the FINMA notification. The bankruptcy liquidator then pays the monies, without any deductions, to the Bank customers. With the payout of the deposits, the rights of the Bank customers are transferred to esisuisse in the respective amount as a result of a subrogation by operation of the law. Esisuisse, thus, becomes a bankruptcy creditor.

The deposit guarantee applies only to privileged deposits with a Bank branch situated in Switzerland. The maximum amount of the contribution of all affiliated Banks is limited to CHF 6 billion. This ceiling does not apply to each individual case, but to the total outstanding contribution obligations of the Banks. The amount of CHF 6 billion currently corresponds to 1.4% of the total amount of the secured deposits. In order to enable them to make their contributions available in the short term, Banks are obliged to keep additional liquid funds of 50% of their contribution commitments.

Planned strengthening of the deposit guarantee
At the beginning of this year, the Federal Council decided to strengthen the deposit guarantee scheme and mandated the Swiss Federal Department of Finance (FDF) to prepare a draft bill for corresponding amendments to the legislation by the end of November 2017. Strengthening is to be achieved through the following measures: 

  • Reduction of the payout period: In alignment with relevant international standards, the period for the payout of insured deposits will be reduced from 20 to 7 working days.
  • Increase of the system ceiling: The maximum amount of the total outstanding contribution obligations is to be increased to 1.6% of the total amount of the secured deposits, which must not be below the limit of CHF 6 billion.
  • Financing of deposit guarantee: Banks are to deposit securities amounting to 50% of their contribution obligations. The current requirement for the maintenance of additional liquidity is to be abolished.

For further questions, please contact our Insolvency Law Team and our Banking and Finance Team.

Authors: Jana Essebier, Seraina Tsering

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