In Switzerland, the balances of customer accounts are partially insured against bank failures. This depositor protection applies accounts held by both individuals and legal entities regardless of where they reside. Accounts held by other banks and securities brokers do not benefit from the same level of protection.
Depositor protection for customers of Swiss banks
The Swiss financial regulatory authority FINMA sets out three different tiers of protection of bank customers. Firstly, depositors can claim repayment from the failed bank’s liquid assets. Secondly, depositors can claim reimbursement from the depositor protection scheme. Thirdly, depositors have a priority claim to balances which are not covered by the bank’s liquid assets and depositor protection during liquidation.
All three tiers of depositor protection only apply to account balances which fall below a certain threshold. This threshold used to be just 30,000 Swiss francs prior to the major banking crisis of 2008, at which point it was raised to 100,000 francs.
Balances (both privileged and non-privileged) in excess of the depositor protection threshold do not benefit from any special protection. They are classified as ordinary debt claims and only have third priority in bankruptcy proceedings.
First layer of protection: Liquid asset claims
When a bank becomes insolvent, its account holders can claim repayment of their privileged balances up to the 100,000-franc threshold. If the bank has liquid assets, it must use these assets to meet its customers’ claims as quickly as possible.
The bank must use available liquid assets to repay account balances as quickly as possible without balancing these with debts. Customers who own the bank money (mortgages, for example) have the same right to full repayment of privileged assets as other customers.
Second layer of protection: The depositor protection scheme
The depositor protection scheme covers insured account balances up to a combined total of 6 billion francs per bank for all customers. That means insured accounts at small banks which manage less than 6 billion francs of balances are fully insured up to the 100,000-franc threshold. If a bank manages more than 6 billion francs of insured account balances, then the 6-billion-franc maximum combined benefit will be divided proportionately between the bank’s account holders in relation to their balances. If a bank manages much more than 6 billion francs of balances, coverage for individual account holders can be extremely low.
Third layer of protection: Priority debt claims
If account balances up to the 100,000-franc-per-customer threshold cannot be fully covered by the bank’s liquid assets and the depositor protection scheme, the differences become priority debt claims. When the bank’s assets are liquidated, these debt claims have second priority after top-priority claims (salary claims from employees, for example).
Second-priority debt claims are more likely to be repaid than third-priority debt claims. The third-priority category typically encompasses the bulk of debt claims. In many cases, holders of third-priority debt claims are not able to reclaim their losses.
Protection varies between account types
Not all account balances benefit from all three layers of depositor protection.
The balances of Swiss private accounts, savings account, investment accounts, brokerage accounts and business accounts are covered by all three layers of depositor protection, as are the face values of medium-term notes. These assets are both privileged and insured, within the 100,000-franc limit per customer and bank. Accounts which are denominated by foreign currencies are protected up to the equivalent of 100,000 Swiss francs at the going rate.
The balances of vested benefits accounts and pillar 3a accounts are only protected by the first and third layers of depositor protection. They are not insured by the Esisuisse depositor protection insurance scheme. A separate 100,000-franc threshold applies to combined vested benefits and pillar 3a balances.
Protection for securities
With the exception of medium-term notes, securities like stocks and bonds are not considered deposits, as they do not represent debt claims against a bank. Securities are owned by you. Banks simply hold and manage securities on your behalf. Because of this, securities are not protected by any layer of depositor protection. If a custodian bank goes bankrupt, you retain legal ownership over your securities and can transfer them to a different custodian bank.
Important: Structured products are vulnerable to loss if the bank which services them fails. Stocks and bonds issued by a bank may become worthless if the bank fails. If your custody agreement includes a securities lending clause which allows the bank to lend out your securities, your securities may be lost if the bank fails.
Shares in mutual funds and ETFs are segregated assets. They are not considered bank assets and are not liquidated during bankruptcy proceedings. Here too, there are exceptions: If your fund shares are part of structured products such as swaps, there is a risk that they will be lost when the bank fails.
Depositor protection: A practical example
This example can help clarify the way that Swiss depositor protection works:
A bank customer has a total of 300,000 francs in account balances at a Swiss bank. These are divided between a pillar 3a account (50,000 francs), a vested benefits account (100,000 francs) and a savings account (150,000 francs). The banks is not a cantonal bank and thus has no state guarantee. It is insured only be the Esisuisse depositor protection scheme.
If the bank went bankrupt, the account bank customers would benefit from this protection:
Of the 150,000 francs of combined pillar 3a and vested benefits retirement savings, 100,000 francs would be privileged under the first and third layers of depositor protection. Of the 150,000 francs in the savings account, 100,000 francs would be covered by the first, second and third layers of depositor protection.
Of the 300,000 francs of account balances held by the bank customer, only 200,000 francs would benefit from any depositor protection privileges. Of those 200,000 francs, only 100,000 are covered by the depositor protection insurance scheme.
State guarantees for cantonal banks
Most cantonal banks are covered by state guarantees from their corresponding cantonal governments. If one of these cantonal banks fails, the taxpayers in that canton must cover its debts to account holders.
With the exception of the Banque Cantonale Vaudoise (BCV), the Berner Kantonalbank and the Banque Cantonale de Genève (BCGE), all cantonal banks are covered by state guarantees. PostFinance account balances were previously covered by a federal guarantee, but this was removed when PostFinance obtained a standard banking license.
The state guarantees insure full repayment of account balances in the event of bank bankruptcy. These state guarantees cover pillar 3a and vested benefits accounts in addition to non-retirement accounts (private accounts, savings accounts), medium-term notes and fixed deposits.