This is how safe your money is when the bank goes bankrupt

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There is a question that occupies many people in Switzerland right now: How safe is my money in the bank? Especially when he was a client of the big Swiss bank Credit Suisse.

This question is quickly answered with reference to the so-called deposit guarantee: Customer deposits in a bank are protected up to CHF 100,000 per person, so it will be paid even if a financial institution goes bankrupt. Therefore, small savers can also sleep peacefully as CS customers.

Deposit insurance is part of a tight safety net designed to protect the deposits of Swiss bank customers. The system consists of three phases: the remaining liquidity of the bankrupt bank, the obligation of the remaining banks to contribute eight billion Swiss francs, and the so-called substance protection. As a preventive measure, every bank in Switzerland must cover at least 125 percent of the secured deposits paid to it with Swiss convertible assets such as securities or loans. “These funds will only be used if both the liquidity and the obligation to contribute are insufficient,” explains Gregor Frey, 56, Managing Director of Swiss deposit insurance company Esisuisse.

factor time

For this reason, Esisuisse can count on a pot of money that is readily available and filled with about eight billion francs. This is 1.6 percent of the funds covered by deposit insurance in Switzerland. At the end of 2021, all banks had 503 billion francs in secured deposits, newer figures are currently not available. But that’s not all: “If necessary, the Federal Council can increase this amount by eight billion francs,” says Frey.

So the problem is not just as much money as time. Because if a bank goes bankrupt, the supervisor appoints a liquidator who must first get an overview of all the secured assets, contact the client and ask where he can transfer the assets up to a maximum of 100,000 francs. This may take some time.

Contingency plan for systemically important banks

The question remains whether the eight billion francs in the deposit insurance pot will be sufficient to cover all safe customer deposits in the case of CS. As Freiburg professor of economics Sergio Rossi puts it: “For example, if Credit Suisse’s bankruptcy exceeds this amount, it is not over-guaranteed.”

But it doesn’t have to be, because it is one of the five systemically important banks in Switzerland, along with CS, UBS, Postfinance, Raiffeisen and Zürcher Kantonalbank. Different rules apply here. “The purpose of deposit protection is not to prevent an imminent systemic crisis,” Frey says. “Deposit protection will likely only come into play at the end of a detailed contingency plan.”

A scheme that applies to all systemically important banks and ensures, among other things, that payment processing and access to customer deposits are continued even if the entire bank goes bankrupt. Customer accounts in Switzerland are also considered to be systematically important, so to speak.

Depending on the financial situation of the bank, this may also apply to funds above the 100,000 franc limit. However, in the event of bankruptcy these funds will likely take longer to actually pay off.

It is hoped that as long as the plan is on paper, it will never have to pass the practical test.

Source :Blick