The historical claim of this section is that the Swiss emergency texts wrote their help as a procedure, not a promise: they set out three kinds of liquidity loan, each to be opened only when the one before is exhausted, with the state's guarantee behind the last; they name no sum for any of the loans and leave the sums to the Federal Council and to contracts; they state a term of six months for the ordinance while letting the obligations it creates run past it; and the amendment of 19 March adds the only sum the texts name, a ceiling on a loss guarantee with a first loss borne by the acquiring bank. Skeptron's record of the episode gives two lines of up to 100 billion francs each from a source not read here. The case speaks to the debate over the classical lender of last resort and to the debate over rules set in advance, and adds the text of an emergency law that writes both its conditions and its term.
5.1The form of the act
The ordinance announces on its first page that it is not yet in its final form: "Dieser Text ist ein Vorabdruck. Verbindlich ist die Version, die in der Amtlichen Sammlung des Bundesrechts veröffentlicht wird." In English: this text is an advance print; the binding version is the one published in the Official Compilation of Federal Law. The text that readers held on the day was not the binding one.
Its authority is stated in the preamble. The Federal Council acts "gestützt auf die Artikel 184 Absatz 3 und 185 Absatz 3 der Bundesverfassung", that is, on the basis of Article 184 paragraph 3 and Article 185 paragraph 3 of the Federal Constitution. The ordinance does not quote or explain those articles, and this article does not explain them beyond the text. What the preamble shows is that the act names its constitutional basis on its face.
The amendment of 19 March adds a further note of haste. Its footnote to the date of entry into force reads: "Dringliche Veröffentlichung vom 19. März 2023 im Sinne von Art. 7 Abs. 3 des Publikationsgesetzes vom 18. Juni 2004 (SR 170.512)." That is: urgent publication of 19 March 2023 within the meaning of Article 7 paragraph 3 of the Publications Act of 18 June 2004. The amendment entered into force on the evening it was signed: "Diese Verordnung tritt am 19. März 2023 um 20.00 Uhr in Kraft", this ordinance enters into force on 19 March 2023 at 20.00.
The ordinance states its purpose in one sentence of Article 1: "Die Verordnung soll dazu beitragen, die Stabilität der Schweizer Volkswirtschaft und des schweizerischen Finanzsystems bei unvorhergesehenen Entwicklungen zu sichern." In English: the ordinance is to help secure the stability of the Swiss economy and of the Swiss financial system in the event of unforeseen developments. The object, as in the American statement, is the system; but the Swiss sentence frames the act as a provision against developments not yet seen, rather than as a response to an event already named. The ordinance names no bank.
5.2Three kinds of loan
Article 2 defines the instruments, and it defines them as a ladder. The first rung is the existing one: extraordinary liquidity assistance loans under the Swiss National Bank's guidelines on its monetary policy instruments, which the ordinance cites by date and version but does not describe. The second rung is new: "Zusätzliche Liquiditätshilfe-Darlehen: Liquiditätshilfe-Darlehen, die zusätzlich zu den ausserordentlichen Liquiditätshilfe-Darlehen gewährt werden und über ein Konkursprivileg gesichert werden." The sense: additional liquidity assistance loans are liquidity assistance loans granted in addition to the extraordinary ones and secured by a privilege in bankruptcy. The third rung goes further: "Liquiditätshilfe-Darlehen mit Ausfallgarantie: Liquiditätshilfe-Darlehen, die über die zusätzlichen Liquiditätshilfe-Darlehen hinausgehen und über ein Konkursprivileg sowie eine Ausfallgarantie des Bundes gesichert werden." That is: liquidity assistance loans with a default guarantee are liquidity assistance loans that go beyond the additional ones and are secured by a privilege in bankruptcy and a default guarantee of the Confederation.
Each rung is defined by the one beneath it: the second is granted in addition to the first, and the third goes beyond the second. The security changes as the rungs rise. The first is secured by collateral, as Article 4 paragraph 4 implies when it speaks of suitable collateral for securing extraordinary loans; the second by a place in the order of claims in bankruptcy; the third by that place and by the state.
The guarantee itself is defined in Article 2 paragraph 2 as the Confederation's guarantee in favour of the National Bank, securing a possible loss on loans of the third kind. Article 4 paragraph 2 says what it obliges the state to do, and when: "Mit einer Ausfallgarantie verpflichtet sich der Bund, im Umfang der bewilligten Mittel nach Abschluss eines Bankenkonkursverfahrens über die Darlehensnehmerin einen allfälligen definitiven Verlust der Nationalbank aus den vom Bund gesicherten Liquiditätshilfe-Darlehen inklusive aufgelaufener Zinsen und der Prämie der Nationalbank nach Artikel 8 Absatz 2 zu übernehmen." In English: with a default guarantee the Confederation undertakes, to the extent of the funds approved, after the conclusion of bank bankruptcy proceedings against the borrower, to take over any definitive loss of the National Bank from the liquidity assistance loans it has secured, including accrued interest and the National Bank's premium under Article 8 paragraph 2.
The sentence is a guarantee of a different kind from the American one. It is given to the lender, not to the depositors. It covers a loss that can be known only after a bankruptcy has been concluded. And it is bounded by the funds approved, a sum the sentence does not give.
5.3The order of payment in bankruptcy
The privilege in bankruptcy that secures the second and third rungs is set out in Articles 3 and 11, each by departure from the federal law on debt enforcement and bankruptcy. For the second rung, Article 3 assigns the National Bank's claims to the second class under Article 219 paragraph 4 of that law, and adds: "In Abweichung von Artikel 220 Absatz 1 SchKG sind die übrigen Forderungen innerhalb der zweiten Klasse gemäss Artikel 219 Absatz 4 Buchstaben a – f SchKG vorab zu befriedigen." That is: in departure from Article 220 paragraph 1 of the debt enforcement and bankruptcy law, the other claims within the second class under Article 219 paragraph 4 letters a to f are to be satisfied first. Article 11 does the same for the third rung, and puts one more set of claims ahead of it: the other second-class claims "sowie Forderungen aus zusätzlichen Liquiditätshilfe-Darlehen", as well as claims from additional liquidity assistance loans.
The ordinance does not say what claims stand in the second class or in letters a to f, and this article does not supply them. What its wording does fix is an order: the claims named in those letters first, then the additional loans, then the guaranteed loans. The state, standing behind the last of these, stands at the back of the queue it created.
5.4When the last rung opens
Article 4 sets the conditions for a default guarantee and for paying out the loans it secures. The guarantee may be given only if three conditions hold. The first is a test of necessity at the level of the whole economy: "eine erhebliche Schädigung der Schweizer Volkswirtschaft und des schweizerischen Finanzsystems kann nicht anders abgewendet werden", serious damage to the Swiss economy and the Swiss financial system cannot be averted otherwise. The second is a test of fitness: the loans must be suitable and necessary for the borrower to continue its business. The third is a test of condition, and it is the one that bears most directly on the classical doctrine: "die FINMA bestätigt die Solvenz der Darlehensnehmerin oder sie bestätigt, dass ein Sanierungsplan vorliegt." In English: FINMA, the financial market supervisor, confirms the solvency of the borrower, or confirms that a restructuring plan exists.
The payout then waits on exhaustion. "Die Auszahlung der Liquiditätshilfe-Darlehen mit Ausfallgarantie erfolgt, wenn die Darlehensnehmerin die mit eigenen Mitteln erschliessbaren Finanzierungsquellen ausgeschöpft hat." The sense: the loans with a default guarantee are paid out when the borrower has exhausted the sources of funding it can open with its own means. Confirmations follow at the first payment. The National Bank confirms to the finance department "dass die Darlehensnehmerin sowie die Finanzgruppe über keine geeigneten Sicherheiten mehr für die Besicherung ausserordentlicher Liquiditätshilfe-Darlehen verfügen und die zusätzlichen Liquiditätshilfe-Darlehen ausgeschöpft sind", that the borrower and its financial group have no more suitable collateral to secure extraordinary liquidity assistance loans and that the additional loans are exhausted. FINMA confirms that no other sources of funding are available.
Read against the classical rule, this passage is the centre of the Swiss case. Bagehot's lender, as his rule is usually summarised, lends on good collateral (Bagehot 1873); Humphrey's classical lender lends to solvent institutions on good collateral, not to rescue insolvent firms (Humphrey 1989). The ordinance's third rung opens precisely when the borrower has no more suitable collateral, and its replacement for collateral is a place in bankruptcy and the state's guarantee. The solvency test is kept, but with an alternative: solvency, or a restructuring plan. This article reads the ladder as an attempt to write down, in advance of its use, the point at which lending stops being lending on collateral and becomes lending on the state's credit, and to make that point a matter of two confirmations by named authorities.
Article 4 adds a sentence that closes off any expectation: "Es besteht kein Rechtsanspruch", there is no legal entitlement, to the Confederation's granting the National Bank a default guarantee for loans to the borrower. The ladder is a set of conditions that must be met, not a set of rights that a bank in trouble can claim.
The amendment of 19 March extends the exhaustion rule downwards. In the ordinance of 16 March, Article 3 paragraph 4 applied certain provisions to the additional loans by analogy, including Article 4 paragraph 3; the amendment rewrites it to include "Die Artikel 4 Absätze 3 und 4", Articles 4 paragraphs 3 and 4, so that the conditions of payout, and not only the conditions of the guarantee, apply to the second rung as well.
5.5What the ordinance does not set: the sum
For all its detail, the ordinance names no sum for any loan. Article 3 paragraph 2 leaves the size of the second rung to the government: "Der Bundesrat bestimmt die Höhe der von der Nationalbank maximal auszahlbaren zusätzlichen Liquiditätshilfe-Darlehen." That is: the Federal Council determines the maximum amount of additional liquidity assistance loans that the National Bank may pay out. The Council consults the National Bank beforehand; the terms otherwise are the National Bank's. The size of the third rung is left to the budget process: Article 5 says that the approval of the necessary commitment credit follows Article 28 of the Financial Budget Act of 7 October 2005, and the guarantee itself, as seen above, covers losses "im Umfang der bewilligten Mittel", to the extent of the funds approved. The details of the guaranteed loans are left to two contracts: the guarantee contract between the Confederation and the National Bank, and the framework credit agreement between the National Bank and the borrower.
The amendment changes the Council's power over the second rung in one respect: "Der Bundesrat bestimmt die Höhe der von der Nationalbank höchstens auszahlbaren zusätzlichen Liquiditätshilfe-Darlehen pro Finanzgruppe." In English: the Federal Council determines the maximum amount of additional liquidity assistance loans that the National Bank may pay out per financial group. The maximum is now per group. The amendment still names no figure.
The law of 16 and 19 March is thus, on its face, a law without a loan amount. The sums were set elsewhere, by decisions and contracts that the texts point to and do not contain; the two sums in Skeptron's record (Section 5.9) are in neither text and cannot be checked here against a primary one.
5.6Who pays while the loans are out
Where the ordinance is silent on sums, it is explicit about charges and constraints. Article 8 gives the National Bank a right to interest on the guaranteed loans, gives the Confederation and the National Bank each a right to a risk premium measured on the amount paid out and set case by case, and adds: "Der Bund hat Anspruch auf eine Prämie für die Bereitstellung einer Ausfallgarantie." That is: the Confederation is entitled to a premium for providing a default guarantee. The National Bank charges these premiums to the borrower and credits the Confederation's share to it; the costs of third parties engaged in granting the guaranteed loans are imposed on the borrower.
Article 9 binds the borrower and its subsidiaries for as long as the framework credit agreement runs and, if it is ended, until the guaranteed loans and the interest and premiums on them are fully repaid. During that time they may not resolve on or pay out "Dividenden und Tantiemen an Personen ausserhalb des Konzerns der Darlehensnehmerin", dividends and directors' fees to persons outside the borrower's group, may not return capital contributions, and may not lend to, or repay loans from, the owners of the group's parent company. Article 10 lets FINMA require "den vollständigen oder teilweisen Wechsel des Organs für die Oberleitung, Aufsicht und Kontrolle sowie des Geschäftsführungsorgans der Darlehensnehmerin", the complete or partial replacement of the borrower's board and executive management, and provides for an order on remuneration. Article 14 makes wilful breach of the duties in Article 9 an offence: "wird mit Freiheitsstrafe bis zu drei Jahren oder Geldstrafe bestraft, wer vorsätzlich die Pflichten nach Artikel 9 verletzt", whoever wilfully breaches the duties under Article 9 is punished with up to three years' imprisonment or a monetary penalty.
The bearers of cost in these articles are thus the borrower, its owners (who receive no dividends and no return of capital while the loans are out), and its managers (who may be replaced and whose pay is subject to an order). The state is a bearer of last resort, through the guarantee, after a bankruptcy. Article 6 adds a constraint of a different kind: the finance department, FINMA and the National Bank may exchange non-public information needed for the loans, and access to that information under the federal law on freedom of information is excluded. The ordinance names who pays, and it also closes the record of how the decisions were made to the public request.
5.7The term, and what outlasts it
The ordinance ends with a term. Article 15 reads: "Diese Verordnung tritt am 16. März 2023 um 20.00 Uhr in Kraft." In English: this ordinance enters into force on 16 March 2023 at 20.00. And its second paragraph: "Sie gilt für die Dauer von sechs Monaten ab Inkrafttreten." In this study's English, which is its own and not an official one: it applies for a period of six months from its entry into force.
Of the four texts read here, this is the only one that states an end. The American release dates a beginning, the joint statement dates a beginning, and neither names an end; the Swiss ordinance dates both. In the terms of Kydland and Prescott's argument (Kydland and Prescott 1977), a stated term is a form of rule: it tells those who act on the measure when the measure is meant to stop. In the terms of Higgs's ratchet (Higgs 1987), whose evidence is American, a term is a claim that a later reader can test.
The same text, however, writes obligations that run past the six months. The duties of Article 9 last until full repayment. The guarantee pays only after bankruptcy proceedings are concluded, and Article 13 sets its maturity further off still: "Die durch eine Ausfallgarantie gedeckte Forderung wird 5 Jahre nach dem rechtskräftigen Abschluss des Konkursverfahrens fällig." The sense: the claim covered by a default guarantee falls due five years after the final conclusion of the bankruptcy proceedings. The ordinance does not say what becomes of loans and guarantees already granted when its six months expire, and this article does not infer it. What can be said from the text is that the term governs the ordinance's validity, while some of the obligations the ordinance creates are written to last beyond it. The term is real, and it is not the end of the matter.
5.8The amendment of 19 March
On 19 March the Federal Council amended the ordinance. The amendment's title is the ordinance's, with the words "Änderung vom 19. März 2023", amendment of 19 March 2023. It adds a new subject to the list in Article 1: "die Garantie zur Verlustabsicherung", the guarantee to secure against losses.
Four of its changes alter what the ordinance is for. The first, a new Article 5a, gives FINMA a power at the moment of credit approval: "Im Zeitpunkt der Kreditbewilligung nach Artikel 5 kann die FINMA gegenüber der Darlehensnehmerin und der Finanzgruppe anordnen, zusätzliches Kernkapital abzuschreiben." That is: at the time of the credit approval under Article 5, FINMA may order the borrower and the financial group to write off additional core capital. The text does not say what that capital is or who holds it, and this article does not say either. It shows a new class of bearer written into the law on 19 March.
The second change suspends the borrower's constraints in one circumstance. A new paragraph 4 of Article 9 says that the duties of paragraph 1, the ban on dividends and the rest, do not apply if the borrower or the financial group is taken over by a third company and absorbed by one of its units ("von einer Einheit der Drittgesellschaft absorbiert werden"). The ordinance of 16 March had bound a borrower that was to continue; the amendment releases those bonds if the borrower ceases to exist.
The third change, Article 10a, sets aside ordinary company law for a transaction of this kind between banks that are systemically important, supervised by FINMA and active internationally, "soweit dies zum Schutz der Schweizer Volkswirtschaft und des schweizerischen Finanzsystems notwendig ist", so far as this is necessary to protect the Swiss economy and the Swiss financial system. Under it, "zur Durchführung solcher Transaktionen bedarf es keiner Beschlüsse der Generalversammlungen der beteiligten Gesellschaften, sofern die Transaktion in Abstimmung mit der FINMA erfolgt", no resolutions of the general meetings of the companies involved are needed to carry out such transactions, provided the transaction is coordinated with FINMA. Certain articles of the Merger Act do not apply, and "Die Entscheide der FINMA sind für die Handelsregisterbehörden bindend", FINMA's decisions are binding on the commercial register authorities. Here the shareholders of the companies concerned appear in the Swiss texts for the first time, as holders of a right to decide that is taken away.
The fourth change is the one with a figure. A new section, headed "Garantie zur Verlustabsicherung", adds Article 14a. Its first paragraph says that in a transaction under the Merger Act between such banks "kann der Bund zugunsten der übernehmenden Bank eine Garantie zur Verlustabsicherung abzuwickelnder Aktiven der übernommenen Bank gewähren": the Confederation may grant, in favour of the acquiring bank, a guarantee to secure against losses on assets of the acquired bank that are to be wound down. Its second paragraph sets the ceiling: "Die Garantie zur Verlustabsicherung beträgt höchstens 9 Milliarden Schweizer Franken." In this study's English, again its own: the guarantee to secure against losses amounts to at most 9 billion Swiss francs.
The third paragraph sets the conditions of payout, and they are strict. All the assets to be wound down must have been definitively realised: "alle abzuwickelnden Aktiven wurden definitiv verwertet". The acquiring bank must itself have borne a first loss: "die übernehmende Bank nach Absatz 1 hat auf den abzuwickelnden Aktiven definitive Verluste von 5 Milliarden Schweizer Franken getragen", the acquiring bank under paragraph 1 has borne definitive losses of 5 billion Swiss francs on the assets to be wound down. And FINMA must monitor these conditions and confirm to the Confederation both the acquiring bank's definitive loss of 5 billion francs and the definitive loss the guarantee is to cover. The details are left to a guarantee contract between the Confederation and the acquiring bank.
The guarantee of 19 March is the mirror of the American promise of 12 March. The American promise covered every depositor of two named banks, from a named day, with no sum and no end. The Swiss guarantee covers one class of asset of one unnamed acquired bank, for one unnamed acquiring bank, with a ceiling, a first loss in front of it and a payout that can come only after every asset in the class has been sold. The amendment names neither bank, and it does not repeat the six-month term or say whether that term governs the guarantee.
5.9The modern record
Skeptron's record of the episode summarises a source this article could not read, the Swiss National Bank's press release of 19 March. Its two central sentences give two lines of support, each with a sum:
The SNB stated that UBS and Credit Suisse could receive support in the form of a total limit of CHF 100 billion, holding priority claims in the event of bankruptcy.
Separately, it stated that a loan of up to CHF 100 billion with a federal guarantee could be provided to Credit Suisse.
Set beside the ordinance, the two lines correspond in their security to the second and third rungs of Article 2: the first is secured by priority in bankruptcy, the second by a federal guarantee. The first line's borrowers are two banks, which sits beside the amendment's change of the Council's maximum to a maximum per financial group; the texts do not let this article say that the Council fixed the first line at that sum, only that the record attributes the sum to the National Bank's statement. Neither sum appears in the ordinance or the amendment. The record does not mention the loss guarantee of at most 9 billion francs, the first loss of 5 billion, the six-month term, the conditions of payout or the write-off of additional core capital.
What the record does, with care, is warn against adding the sums together. Its third question puts the temptation directly:
Can the different support limits all be added together as the executed amount on the same day, or be treated as the acquisition price?
And its answer lists what must be kept apart:
Distinguish the borrowing entity, legal basis, collateral and guarantee, limit, drawdown, and acquisition price.
At the time of the announcement, the support is not used as a guarantee of future profitability.
Its fifth question names what a later reader would have to observe to compare this case with another:
What must be observed is liquidity by maturity, the borrowing entity, and the actual execution record.
The record thus does what the ordinance's ladder requires of a reader, and does it from a different source: it separates a limit from a drawing, and a lender's line from a price paid for a bank. It names neither the limit's term nor its payers. Read on the parent study's common questions, it shows an act of lending or guarantee, sets the figure announced apart from what was drawn, and names no term, no condition of its end and no second dated moment; on whether it names who bore the cost, the two readings of it differ.
5.10What the case adds
To the debate over the classical lender of last resort, the Swiss texts add an emergency law that writes down, before use, the point at which lending on collateral stops and lending on the state's credit begins, and makes that point turn on confirmations by named authorities that collateral and other funding are exhausted. To the debate over rules set in advance, they add a text that states its constitutional basis, its conditions, its bearers and its term, made in an emergency and amended on 19 March to set aside shareholders' votes and to add a guarantee with a ceiling. In Tucker's terms the ordinance is a framework agreed with the government, written at the moment of need rather than before it (Tucker 2018). The texts name no loan sum; the record gives two sums from a source not read here and warns against adding them.