Swiss Pfandbriefe - Switzerland

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1 Who is the issuer? Special credit institution / Special purpose entity

The purpose of the Pfandbrief institutes (PB and PZ) is to enable mortgages for real estate owners at interest rates which are as constant and favourable as posssible (Article 1 Pfandbrief Act). Pfandbrief institutes have a highly restricted scope of business (Article 5 Pfandbrief Act).
2 Does the bondholder have recourse to the issuer (in case of special issuer: recourse to the sponsor bank)? Indirect

Security Chain: The bondholder has a direct recourse to the issuing Pfandbrief institute (Articles 27 - 31 Pfandbrief Act) and an indirect recourse to the member banks. The member banks cover assets secure for the loans granted by the Pfandbrief institute to the member bank.
3 Who owns the cover assets? Others* (*e.g. credit institution pledges to issuer, capitalized legal entity etc.)

The Pfandbrief institute uses the proceeds raised through Swiss Pfandbrief issuance and pass them on to the member banks who originated the eligible mortgage loans. The underlying mortgages remain on the member bank's balance sheets, but PB and PZ receive a lien on the eligible cover assets.
4 Is the issuer the originator of the cover assets? No

Originators of the underlying mortgage loans are the member banks. The Pfandbrief institutes issue the Swiss Pfandbriefe to refinance their member banks mortgage loans.

1 What type of assets may be included in the cover pool?
 
  Primary assets Substitution assets
Public sector assets Mortgage assets Other 1* Other 2* Other 3*  
Residential mortgage loans x
Commercial mortgage loans x
Bonds (Article 25 Pfandbrief Act) x


Only first class mortgages on properties in Switzerland are eligible (Article 19 and 34 - 36 Pfandbrief Act). Currently only residential properties (e.g. single-family houses, condominiums, multi-family houses) in the cover pools, even if commercial mortgages are permissible according to the law.
2 What is the geographical scope of assets?
 
  Primary assets Substitution assets
Public sector assets Mortgage assets Other 1* Other 2* Other 3*  
CH x


By law only domestic.
3 Is there a maximum level for substitute assets in the statutory national framework? Yes, please specifiy

If the statutory primary cover assets is not available in full and the deficiency cannot be remedied immediately, the cover shall be supplemented by debt securities of the Swiss Confederation, cantons or communes admitted to the Swiss Stock Exchange or by a cash deposit (Article 25 Pfandbrief Act).
4 Are there any reporting requirements for covered bond issuers to investors? Yes, voluntary

Since 2012, PB has published the "Pfandbriefbank Pool" with detailed info on a semi-annual basis. Swiss Banking law, Pfandbrief Act, Swiss Code of Obligations, ..., have further reporting requirements. New requirements expected to come with the national implementation of Basle 3 final.
5 What is the frequency of reporting to investors? Semi-annually

The cover pool reporting is published on the website of the Pfandbrief institute.

1 What is the basis for property valuation Mortgage lending value

Article 19 and 34 - 36 Pfandbrief Act.
2 Is a regular update of the property value required? Yes, new external physical apraisal within a specific time span
Yes, automated / indexed valuation sufficient

The regulatory requirements for banks provide for an assessment of the loan at origination and a reassessment when the limit expires. Hedonic valuation methods are subject to qualitative and quantitative requirements. In times of rising prices, there is no compulsion to track the higher prices.
3 What are the LTV limits (single asset based)? Please specify in %/n.a. Residential
Commercial

Residential max. 66 2/3 % or lower, ..., commercial max. 40 % or lower (Article 34 - 36 Pfandbrief Act; Schätzungsreglement).
4 Are loans in excess of LTV limits eligible for inclusion in the cover pool? Yes (soft limit)

LTV limits cap the cover value of an asset.

IV.1 Derivative contracts in the cover pool

1 Are derivative contracts eligible for the inclusion in the cover pool? No

Member Banks: Derivatives are possible contents in some of the mortgage products.
2 Are there requirements for derivative contracts (e.g. eligibility criteria for hedging counterparties)? No

Member Banks: Derivatives possible as part of the mortgage product.
3 Will derivative contracts remain in case of insolvency of the issuer? Yes

Not applicable, as there are no standalone derivative contracts in the cover pool.
4 If derivatives are permitted in the cover pool, what is their ranking? Not applicable

Member Banks: Derivatives possible for mortgage contracts. Pfandbrief institution: Subject to compliance with Financial Market Infrastructure Act.

IV.2 Exposure to market risk

1 What is the primary method for the mitigation of market risk? Natural' matching (i.e. match funding, matching without the use of off-balance sheet instruments) and stress testing
Other

Pfandbrief Institute: By law matching principle for loans to member banks and Swiss Pfandbriefe, as both are denominated in CHF and have the same terms. Member banks: High overcollateralisation and member banks duty to provide additional cover, if nominal or interest coverage is not complied.
2 Are there mitigating provisions for interest rate risk? Yes, by legislation/regulation

Matching Principle on the balance sheet of the Pfandbrief institute. Interest coverage requirement for member banks: Interest on cover assets must exceed interest on loans from Pfandbrief institute.
3 Are there mitigating provisions for foreign exchange risk? Yes, by legislation/regulation

All contracts of the Swiss Pfandbrief collateral chain have to be denominated in Swiss Francs.
4 Are there mitigating provisions for maturity mismatch risk? Other

Matching principle: Pfandbrief Act requires capital cash flow matching between loans to member banks and Swiss Pfandbriefe. Member banks: High overcollateralisation and usualy longer average maturity on the refinancing side than for the mortgage loans.
5 What type of coverage test is applied? Nominal cover
Other, please specify

1. Nominal cover (for each member bank: cover value AND pricipal value of cover assets must exceed nominal value of loans from Pfandbrief institute incl. OC) 2. Interest cover (see "mitigation provisions for interest rate risk")
6 Are there stress scenarios applied? No

Extremely conservative framework (low LTV levels, haircuts, high OC, replacement and supplementation duty, several diversification levels,...). Outstanding historical track. No loss since the Pfandbriefgesetz entered into force (1931).

IV.3 Liquidity risk

1 Is exposure to liquidity risk mitigated? Yes, by law

1) Pfandbrief institute: Capital cash flow matching principle + several provisions to protect timely payment in case of member banks insolvency + liquidity buffer: substantial free HQLA assets (SNB GC); 2) Risk management include cash flow concentration limits and other key figures.
2 What liquidity risk mitigation requirements are in place (principal)? Other, please specify

Risk management and limits include: 1) Law requires capital cash flow matching between loans to member banks and Swiss Pfandbriefe; 2) Substantial free HQLA assets (SNB GC eligible); 3) Cash flow concentration limits and other key figures.
3 What liquidity risk mitigation requirements are in place (interest)? Other, please specify

Risk management and limits include: 1) Law requires capital cash flow matching between loans to member banks and Swiss Pfandbriefe; 2) Substantial free HQLA assets (SNB GC eligible); 3) Cash flow concentration limits and other key figures.
4 What is the consequence of not fixing a breach of liquidity risk mitigants? Other, please specify

Law based action by the Swiss Financial Market Supervisory Authority (FINMA). A breach of liquidity risk mitigants is not allowed as the liquidity buffer is stipulated by law.
5 If 180 days liquidity provisions are in place, what types of liquid assets are eligible Other, please specify

Risk management and limits include: 1) Law requires capital cash flow matching between loans to member banks and Swiss Pfandbriefe; 2) Substantial free HQLA assets (SNB GC eligible); 3) Cash flow concentration limits and other key figures.
6 If 180 days liquidity provisions are in place, the calculation of principal is based on: The expected maturity date

The contractual maturity date of Pfandbrief issuances (only hard bullet), Pfandbrief loans to member banks and mortgages.

IV.4. Maturity extension

1 Is maturity extension allowed by national law? Yes, but optional and subject to conditions

Swiss Pfandbriefe are usually hard bullet. Soft bullet contractual terms have been used in the past in the form of private placements ("Limmat transaction").
2 Is it possible to issue… Hard bullet

Swiss Pfandbriefe are usually hard bullet. Soft bullet Pfandbriefe only in special cases. No soft bullet Pfandbriefe outstanding.
3 Which trigger plays a role for maturity extension according to law - independent or alone or in combination? Other

Swiss Pfandbriefe are usually hard bullet. Soft bullet Pfandbriefe only in special cases. No soft bullet Pfandbriefe outstanding.
4 Does any competent authority need to give its okay (or non-opposition)? Yes

Swiss Pfandbriefe are usually hard bullet. Soft bullet Pfandbriefe only in special cases (see comment above). No soft bullet Pfandbriefe outstanding.

IV.5 Overcollateralisation

1 Is mandatory overcollateralisation required in the law ?

Swiss Pfandbriefe, Cover values to Pfandbrief loans (OC1) - 108% - Nominal

Swiss Pfandbriefe, Mortgages to Pfandbrief loans (OC2) - 110% - Nominal

Swiss Pfandbriefe, Mortgages to Pfandbrief loans (OC2) - 108% - Interest p.a.


Regulatory requirements (approved by Swiss Federal Council). Different Levels for PB and PZ.

V.1 Cover pool monitor (CPM)

1 Is there a cover pool monitor in addition to national competent authorities in the statutory law? Yes, by law

Within the scope of the Pfandbrief Act, the pfandbrief institution is responsible for monitoring, in particular with regard to the mortgage cover pool. FINMA may order the delivery of the cover assets and then acts as trustee (Article 40 Pfandbrief Act).
2 Is the CPM separate from the issuing credit institution? Yes, required by national statutory law

Within the scope of the Pfandbrief Act, the pfandbrief institution is responsible for monitoring, in particular with regard to the mortgage cover pool. FINMA may order the delivery of the cover assets and then acts as trustee (Article 40 Pfandbrief Act).
3 Is the appointment, dismissal, eligibility criteria and the role of the CPM regulated by the national statutory law? Yes

Within the scope of the Pfandbrief Act, the pfandbrief institution is responsible for monitoring, in particular with regard to the mortgage cover pool. FINMA may order the delivery of the cover assets and then acts as trustee (Article 40 Pfandbrief Act).

V.2 Banking supervision

1 Which are the national competent authorities designated to carry out covered bonds public supervision in the law?

Federal Council - Website

FINMA - Website

SER - Website

2 Is a special permission required for a covered bond programme according to national law? Yes, licence for institution

Pfandbrief institution must be in compliance with the Pfandbrief Act.
3 Is there a covered bond issuance limit in law or regulation? If yes, please specify Yes

Pfandbrief institutes may only issue Pfandbriefe in such volumes, that the amount of all on-balance-sheet debt obligations, including Pfandbriefe, does not exceed fifty times the defined equity capital (Article 10 Pfandbrief Act).
4 Does the national statutory law provide for the appointment of a dedicated cover pool administrator in case of insolvency/resolution (transfer included acc. to BRRD [Bank Recovery and Resolution Directive])? Yes

Several special provisions, especially Article 40 and 40a Pfandbrief Act.
5 Which is the typical frequency in the national statutory law of reporting from the covered bond issuers to the designated competent authorities? Semi-annually

Pfandbrief institutions report periodically, among other aspects, about Pfandbrief loans and the related mortgage cover pool. Some reports are quaterly.

1 Does the national statutory law meet the requirements laid down in the EU Covered Bond Directive? Yes

EU CBD not relevant. Differences in minor topics cannot be excluded. Switzerland has fully implemented the consolidated Basel framework, which includes all current and future standards of the Basel Committee on Banking Supervision.
2 Does the statutory law meet the requirements of Article 129 of CRR [Capital Requirement Regulation]? In this case, please specify the collateral types meeting the Art. 129 CRR. Yes

The Swiss Pfandbrief is the only covered bond regulated by special law in Switzerland. Swiss Pfandbriefe are based on Swiss mortage loans.
3 Does the statutory law allow covered bonds out of the scope of Art 129 of CRR? In this case, please specify the collateral No

The Swiss Pfandbrief is only regulated by a special law in Switzerland. Swiss Pfandbriefe are based on Swiss mortage loans.
4 Are listed covered bonds eligible in repo transactions with the national central bank? Yes

The Swiss National Bank maintains the 'List of collateral eligible for SNB repos (SNB GC Basket)', updating and publishing it on a daily basis. The Swiss Pfandbriefe are part of the SNB GC Basket.

Primary Legislation

Secondary Legislation

Hypostat

Fact Book

Any further comments/information? A description of the Swiss Pfandbrief Framework can be found in the annual ECBC Fact Book.
Most relevant acts and ordiances in DE, FR or IT under:
- PfG (https://www.fedlex.admin.ch/eli/cc/47/109_113_57/de)
- PfV (https://www.fedlex.admin.ch/eli/cc/47/121_125_70/de)
- BankG (https://www.fedlex.admin.ch/eli/cc/51/117_121_129/de)
- BankV (https://www.fedlex.admin.ch/eli/cc/2014/273/de)