Creditor Protection

Basis for creditor protection

The Swiss Pfandbrief® is resistant to crises, because

  1. it has an unique historical track record. Since the enactment of Pfandbrief Law in 1931 there has been no default. And since 1931 up to now there were different considerable financial crises to master. According to a study by the Swiss Financial Market Supervisory Authority FINMA Swiss banks had to cope with losses in the domestic credit business of CHF 42 billion between 1991 and 1996, while the Pfandbrief institutes were not touched by this crisis.
  2. it is transparent. Pfandbrief Act consists of only 52 and the Pfandbrief regulation of 25 articles. The 87th annual report of Pfandbriefbank for the business year 2017 comprises 35 pages. It is still structured in the same way as the first annual report from 1931 but contains more information.
  3. it provides legal certainty. Since 1931 the Pfandbrief Law has only seen a few revisions and marginal ones at that.
  4. it is standardised. Every Swiss Pfandbrief® is exactly the same as the next one. Since 1931. The Swiss Pfandbrief® is a commodity.
  5. it is issued by only two institutes with a restricted business segment.
  6. it is stringently supervised. Swiss Federal Council enacts the valuation regulations, authorises the bylaws and nominates a representative into the board of directors. Up to the business year 2007 the Pfandbrief institutes were not only audited by their auditors, but directly by the FINMA as well. Since the coming into effect of the FINMAG, FINMA delegates its auditing to an audit firm.
  7. the cover pool is of highest quality. The Pfandbrief institutes have a right of lien guaranteed by law. The member bank is obliged by law to increase cover if returns from the mortgages are lower than the expenses on the Pfandbrief loans. In addition the Pfandbrief Law requires the member bank to immediately replace non-performing cover assets, i.e. mortgages with value adjustments are not eligible for the cover pool of Pfandbriefbank. The cover pool consists of over 99 percent residential and less than 1 percent commercial properties. Single family homes and condominium ownership account for 86 percent of the total cover value. In principle, properties are feoffed to a maximum of two thirds of their market value. For commercial properties this portion is considerably lower.
  8. there is no maturity mismatch, no interest rate risk and no currency risk in the balance sheet of Pfandbriefbank. The Pfandbrief loans on the assets side and the outstanding Pfandbrief on the liabilities side have the exact same duration. The interest rate on the assets side exceeds the one on the liabilities side by a slim margin of a few basis points. There is no foreign currency. All assets and liabilities are denominated in Swiss Francs only.

Another strength of the Pfandbrief is its repo-eligibility. It is a seal of quality from the Swiss National Bank. For the sake of completeness Moody's Triple A Rating for Swiss Pfandbriefe® has to be mentioned. Such a rating simplifies communication. Who still understands the term gilt-edged (mündelsicher) nowadays? It used to be the terminus technicus for a Triple A paper like the Swiss Pfandbrief® before the appearance of rating agencies. 

Investors in Swiss Pfandbriefe® profit from a fourfold security. On the first level there are the assets of the Pfandbriefinstitutes themselves (1), followed by the assets of the member banks the loans are granted to (2), the assets (besides the property) of the house owners (3) and the market value of the property itself (4).