At the same time, it introduced an unweighted capital adequacy requirement – a leverage ratio, to serve as a nonrisk-based backstop to the risk-based capital requirement for banks. The FSB measures are aimed at improving the resolvability of systemically important banks. In particular, requirements have been defined for resolution planning and for the accumulation of gone-concern loss-absorbing capacity. These measures are intended to ensure that systemically important banks can exit the market in an ‘orderly’ fashion in the event of a crisis. 17 18  For example, cf. FINMA (2009), p. 19. Cf. FINMA (2009), p.30 et seq. 19  Cf. Branson (2011), p.5: ‘For several decades we believed that the greater sophistication of risk management techniques allowed us to tolerate thinner capital cushions. We were wrong.’  Page 8/14  b) Swiss TBTF regulations rest on two complementary pillars …  In Switzerland, parliament had already passed a package of legislation back in 2011 that recognises the special importance of the ‘too big to fail’ issue and is in line with the international approach. It is based on two complementary pillars with special requirements for systemically important banks. The first pillar defines measures to strengthen the resilience of these banks and thereby reduce the likelihood of a systemically important bank getting into financial distress. In particular, the revised regulations impose stricter capital and liquidity requirements on banks. They have to meet both risk-weighted capital requirements and a leverage ratio requirement. Equity capital allows banks to absorb losses, thus protecting them from insolvency.

Its assessment of the Swiss approach was positive, considering it appropriate in an international comparison. 21 At the same time, the Federal Council concluded that further action was needed in relation to certain parameters. In particular, it stressed that, due to the special significance of ‘too big to fail’ in our country, Switzerland should be at the forefront when it comes to setting resilience requirements. Consequently, it prescribed an increase in capital requirements. These changes have been criticised in some quarters. Concerns were voiced that some of the adjustments were unreasonable and would put banks at a competitive disadvantage internationally. 22 How justified is this criticism? c) … and are designed to be cost-effective  All regulations inevitably meet with resistance because they create added costs for the regulated institutions. But it is often the only way to bring about the desired change in conduct. In any discussion of the costs of regulation, it is important to weigh the private costs incurred by those subject to the regulations against the costs to the economy as a whole. As long as the private costs are less than the macroeconomic benefit, then the regulations make economic sense. Yet such a cost/benefit analysis is complex and fraught with uncertainty. The literature is unambiguous on the macroeconomic costs and benefits of the post-crisis increase in capital requirements. 23 The benefits far exceed the costs involved. The benefits of the higher capital requirements are that they reduce the likelihood and the severity of a banking crisis.