Privatisation of PostFinance on the cards
“Too big to fail” describes a business or business sector deemed to be so deeply ingrained in a financial system or economy that its failure would be disastrous to the economy. Therefore, the government will consider bailing out the business or even an entire sector.
However, despite having a banking licence it cannot grant loans or mortgages on its own balance sheet as it is state-owned (subsidised).
The government said on Wednesday it wanted PostFinance to be authorised to grant loans and mortgages. To this end, PostFinance must be separated from the Swiss Post Group and privatised. Originally the government had proposed lifting the ban on PostFinance granting mortgages and loans and opening up its shareholding structure. During the consultation process, however, a large proportion of those concerned were not happy with this option. Doubts were expressed, in particular about constitutionality, competitive neutrality, federalism and financial market stability.
Change in law
The privatisation of PostFinance will require three major changes to the Postal Act. First, the provision that PostFinance is not permitted to grant mortgages and loans and the requirement that Swiss Post must hold a majority of the votes and shares in PostFinance are to be removed from the Act. Second, the Act must be revised to free PostFinance from any obligation to render universal public services given its current integration into postal and payment services. Finally, the government decided to add a provision which would enable the government to support Swiss Post in implementing the “too big to fail” legislation.
As a systemically important bank, PostFinance must meet increased capital requirements. Due to their reduced earning power, Swiss Post and PostFinance are unable to provide the additional capital required by the financial regulator in full and on time. For this reason, the government, as the indirect owner of PostFinance, must guarantee that it will cover the remaining equity shortfall in the event of bankruptcy. This capitalisation guarantee must be limited in time and amount and remunerated at market conditions.
The Swiss Federation of Trade Unions said on Wednesday it vehemently opposed the privatisation of PostFinance. The institute is a people’s bank with almost three million customers and belongs to the general public as part of Swiss Post, it said.