20.01.2023
In Switzerland, depositor protection kicks in if a bank goes bankrupt. Up to CHF 100,000 is protected per customer or joint account. But how does depositor protection work, and what do you need to know as a customer?
What will happen to my money if a bank goes bankrupt? In Switzerland, this is governed by depositor protection, which is laid down in the Swiss Banking Act. We answer the key questions on depositor protection, and outline what the situation is as of 1 January 2023.
Depositor protection is designed to ensure that the deposits per customer (not per account) are protected up to a value of CHF 100,000 if a bank goes bankrupt. If a customer holds multiple accounts with the same bank, these are counted as one. Depositor protection applies to both natural and legal entities, and also to communities of persons.
Deposits are credit that customers have with banks (e. g. in a private account, savings account, etc.).
The same rules apply to all banks: all deposits held in the name of banking customers are protected, including deposits in foreign currencies. These deposits are protected up to a value of CHF 100,000. Retirement assets in 3a accounts or vested benefits accounts do not count as protected deposits, but are granted privileged status in the event of bankruptcy up to a value of CHF 100,000. This privileged status is granted in addition to and irrespective of the remaining deposits. If a customer simultaneously manages retirement savings account 3a assets and vested benefits assets via various foundations that invest the funds with PostFinance Ltd, the maximum privileged protection of CHF 100,000 applies to each product. Products not covered by depositor protection are: Securities or cryptocurrency units seeing as they are distributed to the customers in the event of bankruptcy.
If several persons are joint account holders, this community is treated as a separate customer in its own right as far as protection is concerned. If this community (e.g. spouses, simple partnerships, communities of heirs or communities of condominium owners) holds several accounts with the same bank, these are counted as one. Credit in the name of this type of community is protected up to a value of CHF 100,000. If an individual from this type of community has their own, separate customer relationship with the bank, credit of up to CHF 100,000 is protected for them as well.
Depositor protection came about to protect depositors if a bank went bankrupt by ensuring, wherever possible, that they incur no or only limited losses.
The association esisuisse as a self-regulating organization for banks. esisuisse protects customer assets with banks and securities firms in Switzerland. Just like PostFinance, all banks and securities firms in Switzerland are affiliated with the depositor protection scheme/esisuisse by law. This guarantees that CHF 8 billion is available in payout funds in the form of depositor protection. This amount corresponds to the value set out in law, i.e. 1.6% of all protected deposits in Switzerland
If a bank or securities firm goes bankrupt in Switzerland, esisuisse provides the necessary funds to pay out the protected deposits. esisuisse, in turn, is financed by those institutes with which it is affiliated. This means there is joint and several liability amongst the member that guarantees the depositor protection scheme. With that said, esisuisse only has to finance the payout of the protected deposits if the bank in question does not have sufficient liquidity to do so itself.
Every bank in Switzerland is legally obliged to retain liquidity in case they have to make contributions towards the depositor protection scheme. 50% of this obligation to contribute funds, which is subject to the equity requirements of the banks, comes in the form of securities or funds with a third-party custodian (e.g. SIX, SNB).
The payout of deposits to the customers is clearly regulated by a process involving esisuisse, a liquidator, banks and customers. However, the time up until payout to the customers depends on the structures of the bank in question and the cooperation of the customers. The reason for this is that, in the event of a payout, the customers must state the account they wish the money to be paid into. This process usually takes several weeks.
As a systemically important bank whose position in the field of payment transactions and domestic deposit services is vital to Switzerland as a whole, PostFinance must adhere to particularly strict liquidity and equity requirements. Systemically important banks – which, in addition to PostFinance, also include UBS, Credit Suisse, Raiffeisen Group and Zürcher Kantonalbank – have also taken additional precautions and drawn up so-called “emergency plans” so that domestic deposit services can continue to be run smoothly, even if these banks experience trouble or have to be liquidated. This is why esisuisse sees it as highly unlikely that the protected deposits with these banks will require financing via the depositor protection scheme.
Depositor protection essentially applies to all banks that, like PostFinance, hold a licence with the Swiss Financial Market Supervisory Authority, FINMA. For all other institutes – for instance neo-banks, fintechs or foreign banks – you will need to check with that institute whether and which country-specific deposit guarantee schemes apply.
