Swiss Pfandbriefe

1 Who is the issuer?
  • Specialized credit institution
  Comments: Swiss Pfandbrief law (PfG) Art.2: Only two Pfandbrief institutes (Pfandbriefbank schweizerischer Hypothekarinstitute AG, Pfandbriefzentrale der schweizerischen Kantonalbanken AG)
PfG Art. 5: Special banks with limited business scope (1. issuance of Swiss Pfandbriefe, 2. to grant loans to member banks, 3. invest the capital)
2 Does the bondholder have recourse to the credit institution?
  • Yes, indirect
  Comments: The bondholder has recourse to the Pfandbrief institute (PfG Art. 27 - 31). The bondholder does not have a direct recourse to the member banks. The Pfandbrief institutes, however, have a direct recourse to the member banks.
3 Who owns the cover assets?
  • Credit institution, but pledged to the issuer (with transfer to the issuer upon trigger event)
  Comments: Cover assets are owned by the member banks and pledged to Pfandbrief institutes.
4 Is the issuer the originator of the assets?
  • No
  Comments: The Pfandbrief institutes are the originators of the Swiss Pfandbriefe and the member banks are the originators of the mortgage loans.
1 Are the bonds governed by a special covered bond Legislation?
  • Yes
  Comments: The legal basis of Swiss Pfandbriefe is the Pfandbrief law (PfG) established in 1931.
2 What is the legal framework for bankruptcy of the issuer of covered bonds?
  • General insolvency law
  • Specific legal framework superseding the general insolvency law
  Comments: Specific legal framework under PfG and Swiss Federal Banking Law on Banks and Saving Banks (Swiss Banking law) superseding the general insolvency law.
PfG Art. 14 - 26 and Swiss Banking law Art. 25 - 37.
1 What types of assets may be included in cover pools?
  • Mortgage loans (Mortgage loans for the purpose of this question are taken to include guaranteed real-estate loans.)
  Comments: Only first class mortgages on properties in Switzerland are eligible (PfG Art. 19 and 34 - 36).
95 % are residential, private single-family homes or apartment blocks and only 5 % commercial properties.
2 What is the geographical scope for public sector assets?
  Comments: Not applicable. There are no public sector cover assets.
3 What is the geographical scope for mortgage assets?
  Comments: Switzerland only.
4 Are regular covered bond specific disclosure requirements to the public mandatory?
  • Yes
  Comments: PfG, Swiss Code of Obligations, Securities Exchange law, Swiss Banking law.
1 LTV is calculated using which valuation?[4]
  • Market value
  Comments: PfG Art. 34 - 36: The maximum LTV is 2/3 of market value. Detailed valuation regulation have to be authorised by the Federal finance department.
Mortgage lending value fixed by Pfandbrief institute completely independent of the member bank. The decision to accept a cover assets lies with Pfandbrief institute and not with member bank.
2 Are there any special LTV limits used solely for calculating collateralisation rates for the cover pool (if yes, specify)?
  • Residential      
    66.67 %
  Comments: PfG Art 34 - 36: Max. 66.67 % or lower.
3 Do bondholders get the benefit of that portion of the loan which exceeds the LTV cap?
  • No
4a Is there an LTV cap which makes the entire loan ineligible to be put in the cover pool (if yes, specify)?
  • No
  Comments: Eligibility criteria and LTVs have to be met continuously.
4b Is there an LTV cap which would require a loan to be removed from the cover pool?
  • No
  Comments: Eligibility criteria and LTVs have to be met continuously.
5 Is there any additional LTV limit on a portfolio basis?
  • Yes (if yes specify)
  Comments: E.g. at least 80 % of cover value after haircuts have to be residential mortgage loans.
Exposure to market risk
1 Is exposure to market risk (e.g. interest rate, currency risks) required to be mitigated by law or contract?
  • Yes
  Comments: By law there is no interest rate risk, no currency rate risk and no maturity mismatch.
2 What is the primary method for the mitigation of market risk?
  • “Natural” matching (matching without the use of off-balance sheet instruments) and stress testing
  Comments: By law matching between loans to member banks and Swiss Pfandbriefe, as both are denominated in CHF and have the same terms.
Derivatives are not used, as there are no currency rate risk, no interest rate risk and no maturity mismatch.
3 If the answer to the above question on market risk mitigation is “Use of derivative hedge instruments”, please specify whether those instruments are entered into:
  • Not relevant
  Comments: Derivatives are not used, as there are no currency rate risk, no interest rate risk and no maturity mismatch.
4 What type of coverage test is applied?
  • Nominal cover
5 What is the frequency of coverage calculations?
  • Daily
6 What types of stress scenarios are applied?
  • Not relevant
  Comments: Not relevant, due to low LTV. Outstanding historical track. No loss since establishment of PfG (1931).
7 What is the frequency of stress test calculations?
  • Not relevant
  Comments: Not relevant, due to low LTV. Outstanding historical track. No loss since establishment of PfG (1931).
Exposure to liquidity risk
8 Is exposure to liquidity risk required to be mitigated by law or contract?
  • Yes
  Comments: By law.
9 What is the primary method for the mitigation of liquidity risk on interest payments?
  • “Natural” matching (matching without the use of off-balance sheet instruments) and stress testing (Natural matching is taken to include replacing CBs with new issues, as well as substitute assets.)
  • Liquidity facilities
  • Contractual arrangements, e.g. a requirement to establish a reserve fund
  Comments: Risk management and limits include:
1) Law requires cash flow matching between loans to member banks and Swiss Pfandbriefe
2) Substantial free assets in liquid form (repo capable: SNB GC bond basket holdings can be repoed against CHF to EUREX counterparties)
3) Several cash flow concentration limits per member bank, monitored daily
4) Maturity extension for defined contracts (private placements of Swiss Pfandbriefe of "Limmat" program).
10 What is the primary method for the mitigation of liquidity risk on principal payments?
  • Natural matching (matching without the use of off-balance sheet instruments) and stress testing
  • Liquidity facilities
  • Contractual arrangements, e.g. maturity extension or prematurity test
  Comments: Risk management and limits include:
1) Law requires cash flow matching between loans to member banks and Swiss Pfandbriefe
2) Substantial free assets in liquid form (repo capable: SNB GC bond basket holdings can be repoed against CHF to EUREX counterparties)
3) Several cash flow concentration limits per member bank, monitored daily
4) Maturity extension for defined contracts (private placements of Swiss Pfandbriefe of "Limmat" program).
11 Is there any grace period in case of a breach of liquidity risk mitigants?
  • No
12 What is the consequence of not fixing a breach of liquidity risk mitigants?
  • Other regulatory or rule-based action
  Comments: A breach of liquidity risk mitigants is not allowed as the liquidity buffer is stipulated by law.
Monitoring of exposures to market and liquidity risk
13 Who monitors the maintenance of coverage tests?
  • Other
  Comments: The Swiss Pfandbrief system is twofold. The two Swiss Pfandbrief institutes are the outsourced cover pool of their member banks. The Pfandbrief institutes value the coverage (only mortgages) completely independent of the member banks and supervise them daily.
14 Are there any regular public reporting requirements for market and liquidity risk?
  • Yes
  Comments: Reports to member banks, rating agency, auditors, shareholders, Federal Finance Department, Swiss exchange authorities, corporate website.
Overcollateralisation
15 Is mandatory minimum overcollateralisation required?
  • By legislation/regulation
  Comments: Yes, by Swiss Pfandbrief law and Swiss Financial Market Authority (FINMA) regulations.
16 What is the level of minimum mandatory overcollateralisation?
  • 8 %
  Comments: Overcollateralisation of at least 8 % is measured after valuation of mortgage loan and individual LTV of max. 66.7 %.
17 If mandatory overcollateralisation is required, are the amounts above the minimum OC level protected?
  • Yes
18 Is there any grace period in case of a breach of the coverage test?
  • No
19 What is the consequence of not fixing a breach of the coverage test?
  • Other regulatory or rule-based actions
  Comments: 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.
1 Is a special license required for the issuing of covered bonds?
  • Yes with additional requirements compared to general banking supervision regulations
  Comments: Yes, as per Pfandbrief law only the two Swiss Pfandbrief institutes are legally permitted to issue Swiss Pfandbriefe.
2 Are there special reporting duties of the covered bond issuer to the supervision authority concerning covered bonds and the cover pool, which go beyond the regular banking supervision?
  • Periodic reporting required
  Comments: Yes, according to Swiss Pfandbrief law.
3 What is the role of the banking supervision regarding covered bonds?
  Comments: Supervision of the Swiss Pfandbrief institutes, the issuance of Swiss Pfandbriefe and the member banks.
4 Is there a special role of banking supervision in crisis regarding covered bonds?
  Comments: Yes, based on Swiss Pfandbrief law and Swiss Banking law.
5 Is there a cover pool monitor independent from the issuer?
  • Yes
  Comments: The Pfandbrief institutes select and valuate the cover pool fully independent of the member bank (who grants the mortgage to the house owner) and supervises the cover pool daily.
6 If there is an independent cover pool monitor, what are its duties?
  Comments: See answer above (VI.5)
1 Do covered bonds automatically accelerate when the credit institution goes insolvent?
  • No
  Comments: If a member bank goes insolvent (as opposed to a Swiss Pfandbrief institute), the Swiss Pfandbriefe will be satisfied according to the conditions of the issue and they will be repaid at the time of their contractual maturity. Automatic acceleration only occurs in a case of bankruptcy of the Pfandbrief institute.
2 What is the cover pool?
  • All assets on the cover register
  Comments: The cover pool consists only of eligible mortgage loans as per cover pool register.
3 How are the covered bondholders protected against claims from other creditors in case of insolvency of the issuer?
  Comments: There are no significant other creditors than Pfandbrief bondholders due to special bank principle.
4 Is there recourse to the credit institution’s insolvency estate upon a cover pool default?
  • Yes, pari passu with unsecured creditors
5 Are there provisions that require derivatives to continue in case of insolvency of the credit institution?
  Comments: n.a. (no derivative instrument)
6 If derivatives are permitted in the cover pool, what is their ranking?
  Comments: n.a. (derivatives are not permitted by law)
1 Does the covered bond fulfil the criteria of UCITS 52(4)?
  • No
2 For further information regarding the compliance to the criteria of Article 129 of the Capital Requirements Regulation (CRR), please see the following links: http://ecbc.hypo.org/Content/default.asp?PageID=504#position https://www.coveredbondlabel.com
3 Are listed covered bonds eligible in repo transactions with the national central bank?
  • Yes
  Comments: Part of SNB GC Basket (CHF)
4 Are there any special investment regulations regarding covered bonds?
  • Yes
  Comments: Defined by law.
1 Link to National Association representing covered bond interests
  • Association
2 Link to national regulators and supervisors
3 Fact Book Country Chapter
  • Chapter
 
4 Hypostat Country Chapter
  • Chapter