Capital Adequacy Ordinance (CAO)
Amended by Annex No 2 of the O of 23 Nov. 2022, in force since 1 Jan. 2023 (AS 2022 804).
English is not an official language of the Swiss Confederation. This translation is provided for information purposes only and has no legal force.
Chapter 1 General
Art. 18 Capital components
1 Eligible capital is composed of core capital (Tier 1 capital; T1) and supplementary capital (Tier 2 capital; T2). 2 Core capital is composed of Common Equity Tier 1 (CET1) capital and additional Tier 1 (AT1) capital.
Art. 19 Loss absorption
1 The loss absorption principles for the capital components are as follows: a. CET1 capital shall absorb losses ahead of AT1 capital; b. AT1 capital shall absorb losses ahead of Tier 2 capital. 2 If individual instruments of the same capital component (excluding CET1) are not to absorb losses in the same way, this must be specified in the articles of association or when the instrument is issued.
Art. 20 Common capital requirements
1 Capital must be fully paid up or generated internally to the extent of its recognition. 2 At the time of issuance, it may not: a. be directly or indirectly financed by loans granted by the bank to third parties; b. be offset against the bank's receivables; c. be secured by bank assets. 3 It must be subordinate to the senior claims of all other creditors in the event of liquidation, bankruptcy or restructuring. 4 Capital instruments that do not only provide for contingent conversion or write-off at point of non-viability (Art. 29) shall be recognised as capital components commensurate with their characteristics prior to conversion or write-off. This shall be without prejudice to: a. recognition to cover the capital buffer requirement under Article 43 paragraph 1 and Annex 8; and b. the provisions for the convertible capital of systemically important banks under Title 5. 5 FINMA shall issue technical implementing provisions on the eligibility of capital.
Para. 4 let. a — Amended by No I of the O of 22 Nov. 2017, in force since 1 Jan. 2018 (AS 2017 7625). Para. 5 — Inserted by No I of the O of 29 Nov. 2023, in force since 1 Jan. 2025 (AS 2024 13).
Chapter 2 Calculation
Section 1 Common Equity Tier 1 (CET1) Capital
Art. 21 Eligible elements
1 The following shall be eligible as CET1 capital: a. paid-up share capital; b. disclosed reserves; c. reserves for general banking risks after deduction of deferred taxes, unless a corresponding provision has been created; d. retained earnings; e. the profit for the current business year after deducting the estimated earnings distribution, to the following extent, subject to the existence of a full income statement in accordance with FINMA's implementing provisions based on Article 42 of the BankO, or of a full income statement in accordance with an international standard recognised by FINMA: 1. 100% if the income statement has been audited according to FINMA's requirements, 2. 70% if the income statement has not been audited; in justified cases, FINMA may request an attestation for the recognition. 2 Minority interests in fully consolidated regulated entities shall be eligible to the extent that they are eligible in these entities themselves. Capital surpluses attributable to minorit
Para. 1 let. e — Amended by No I of the O of 29 Nov. 2023, in force since 1 Jan. 2025 (AS 2024 13). Para. 1 let. e — SR 952.02 Para. 2 — The CAP is listed in Annex 1 No 2. Para. 2 — Amended by No I of the O of 29 Nov. 2023, in force since 1 Jan. 2025 (AS 2024 13).
Art. 22 Eligibility of share capital
1 Share capital shall be eligible as CET1 capital if: a. it meets the requirements set out in Article 20; b. it was directly issued in accordance with the resolution or authorisation of the owners; c. it does not constitute a liability for the company; d. it is clearly and separately disclosed on the balance sheet in accordance with the applicable accounting standards; e. it is perpetual and not subject to any provision to the contrary in the bank's articles of association or contractual obligations; f. distributions to the owners are carried out from distributable reserves without any obligations or privileges; and g. owners do not have any privileges or senior claims to the proceeds in the event of liquidation. 1bis If equity securities do not absorb going-concern losses equally, only those for primary loss absorption may be recognised as CET1 capital. 2 Preferred stock and participation capital shall be eligible as CET1 if: a. they meet the criteria under paragraph 1; b. they are eq
Para. 1bis — Inserted by No I of the O of 29 Nov. 2023, in force since 1 Jan. 2025 (AS 2024 13). Para. 2 let. c — Amended by Annex 2 No 4 of the Banking Ordinance of 30 April 2014, in force since 1 Jan. 2015 (AS 2014 1269).
Art. 23 Types of share capital
1 Depending on a bank's legal form, the share capital shall consist of equity, nominal, cooperative or endowment capital, and the limited-partner contribution in the case of banks in the form of partnerships (private bankers). 2 FINMA may issue technical implementing provisions on the regulatory recognition of banks' share capital.
Art. 24 Endowment capital of banks under public law
If cantonal legislation or the articles of association of banks under public law provide for a maturity date for their endowment capital, this capital may be recognised as CET1 capital if the maturity: a. serves the purpose of being able to redefine the conditions; and b. does not lead to the repayment of the endowment capital.
Art. 25 Capital contributions of private bankers
1 Private bankers may recognise capital contributions as CET1 capital if: a. their amount is specified in the partnership agreement to be approved by FINMA; b. they bear interest or entitle the contributor to a share in profits only if sufficient profit is available at the end of the financial year; and c. they are equivalent to a limited-partner contribution as regards loss absorption. 2 Capital contributions may be reduced only in a procedure that involves all partners with unlimited liability. 3 CET1 capital may be decreased by a reduction in capital contributions only to the extent that the remaining capital meets the requirements under Article 41.
Art. 26 Cooperative capital
1 If the articles of association provide for the redemption of cooperative capital share certificates, the cooperative capital may be recognised as CET1 capital if the articles of association specify that the redemption: a. may be rejected by the governing bodies at any time without giving reasons; and b. is carried out only to the extent that the bank's remaining capital meets the requirements under Article 41. 2 A restriction on the claim to the liquidation proceeds must: a. affect all share certificate holders equally; and b. be provided for in the articles of association. 3 A share in the liquidation proceeds may be foregone only in favour of: a. a public or tax-exempt private institution; or b. a central organisation within the meaning of Article 17 BankO if the bank to be liquidated belongs to this central organisation. 4 Articles of association must not guarantee distributions for holders of share certificates, even if they set an upper limit.
Para. 3 let. b — Amended by Annex 2 No. 4 of the Banking Ordinance of 30 April 2014, in force since 1 Jan. 2015 (AS 2014 1269). Para. 3 let. b — SR 952.02
Section 2 Additional Tier 1 (AT1) Capital
Art. 27 Eligibility
1 A capital instrument shall be eligible as AT1 capital if: a. it meets the requirements under Articles 20 and 29; b. it is perpetual and, at the time of issuance, the bank does not create expectations of repayment or the corresponding approval of the supervisory authority; c. the bank is entitled to repay the capital no earlier than five years after issuance; d. the bank indicates at the time of issuance that the supervisory authority will approve repayment only if: 1. the remaining capital continues to meet the requirements under Article 41; or 2. sufficient capital that is at least equivalent is issued to replace it; e. it does not have any characteristics which would in any way complicate an increase in the bank's share capital; f. distributions by the bank to the capital providers are made solely on a discretionary basis and only if distributable reserves are available; and g. increases in distributions to the capital providers during the term as a result of issuer-specific credit
Para. 4bis — Inserted by No I of the O of 29 Nov. 2023, in force since 1 Jan. 2025 (AS 2024 13). Para. 5 — Amended by No I of the O of 29 Nov. 2023, in force since 1 Jan. 2025 (AS 2024 13).
Art. 27a Activation of the trigger
If the trigger is activated for liabilities under Article 27 paragraph 3 that are eligible as additional Tier 1 capital, FINMA shall order the write-off or conversion to CET1 capital, including the time of such, and shall define the amount concerned. In doing so, it shall maintain the contractual issue and/or loan conditions, as well as the resulting order of priority.
Art. 27a — Inserted by No I of the O of 29 Nov. 2023, in force since 1 Jan. 2025 (AS 2024 13).
Art. 28 Availability in the financial group
AT1 capital issued by a non-operating special purpose entity shall be recognised on a consolidated basis if it is directly and unrestrictedly transferred in the same or higher quality to the group parent company or an operating entity of the bank.
Art. 29 Point of non-viability (PONV)
1 The terms and conditions of issue or the articles of association must make provision for AT1 capital to contribute to the bank's restructuring by means of a complete write-off or conversion at the point of non-viability. In this case, creditors' claims must be written off in full. 2 The conversion to CET1 capital or the write-off shall take place if FINMA: a. identifies a recourse to public sector assistance in which the conversion or write-off for the investors takes effect before the assistance is availed of; or b. orders this to avoid insolvency. 3 In the case of equity securities that are recognised as AT1 capital and do not have a loss absorption mechanism in accordance with paragraph 1, the contract or articles of association must make provision for the irrevocable waiver of any privileges with respect to the share capital that qualifies as CET1 capital at the point of non-viability. In each individual case, FINMA shall define the time at which the privilege ceases to apply.
Para. 2 let. b — Amended by No I of the O of 29 Nov. 2023, in force since 1 Jan. 2025 (AS 2024 13). Para. 3 — Second sentence inserted by No I of the O of 29 Nov. 2023, in force since 1 Jan. 2025 (AS 2024 13).
Section 3 Supplementary (Tier 2) Capital
Art. 30 Eligibility
1 A capital instrument shall be eligible as Tier 2 capital if: a. it meets the requirements under Article 20 and Article 29 paragraphs 1 and 2; b. it has an original maturity of at least five years and the terms and conditions of issue do not contain any repayment incentives for the bank; c. the bank is entitled to repay the capital no earlier than five years after issuance; d. the bank indicates at the time of issuance that the supervisory authority will approve early repayment only if: 1. the remaining capital continues to meet the requirements under Article 41; or 2. sufficient capital that is at least equivalent is issued to replace it; and e. increases in distributions to the capital providers during the term as a result of issuer-specific credit risk are excluded. 2 In the last five years prior to final maturity, the recognition of Tier 2 capital instruments shall decrease by 20% of the nominal amount each year. They shall not be recognised at all in the last year. 3 Article 21 p
Section 4 Adjustments
Art. 31 General
1 The adjustments to eligible capital shall be calculated in the same way for both individual entities and consolidated financial groups. 2 The carrying value shall be the relevant amount for an adjustment. Anticipated tax effects may be taken into account to reduce the adjustment only if: a. the tax liability expires automatically together with the corresponding position; or b. this is expressly provided for in this Ordinance or in FINMA's technical implementing provisions. 3 FINMA may define in technical implementing provisions the implementation of the provisions on adjustments, and provide for special rules for banks that prepare their financial statements in accordance with internationally recognised accounting standards.
Para. 3 — Amended by No I of the O of 29 Nov. 2023, in force since 1 Jan. 2025 (AS 2024 13).
Art. 31a Changes in the fair value of own liabilities as a result of a change in the bank's credit risk
1 When calculating CET1 capital, all unrealised gains and losses on own liabilities that are attributable to fair value changes caused by changes in the bank's credit risk must be neutralised. 2 In addition, all valuation adjustments concerning derivative liabilities that arise from the bank's own credit risk must be neutralised. 3 Valuation adjustments arising from the bank's own credit risk must not be netted against valuation adjustments arising from the counterparties' credit risk.
Art. 31a — Inserted by Annex 2 No 4 of the Banking Ordinance of 30 April 2014, in force since 1 Jan. 2015 (AS 2014 1269).
Art. 32 Deductions from CET1 capital
1 The following must be deducted in full from CET1 capital: a. the loss carried forward and the loss for the current financial year; b. the unsecured valuation adjustments and provisions for the current financial year; c. goodwill, including any goodwill included in the valuation of significant interests in financial sector entities outside the scope of consolidation, and intangible assets other than mortgage servicing rights (MSR); d. deferred tax assets (DTA) whose realisation depends on future profitability, subject to offsetting against deferred tax liabilities under paragraph 2; deferred tax assets which result from temporary differences and which are subject to the deductions according to the thresholds under Articles 39 and 40, shall be excluded from the deduction; e. revenue from sales related to securitisation transactions; f. balance sheet claims against defined-benefit occupational pension institutions; these claims must be deducted in accordance with the corresponding requi
Art. 32 — Amended by No I of the O of 29 Nov. 2023, in force since 1 Jan. 2025 (AS 2024 13). Para. 1 let. f — The CAP is listed in Annex 1 No 2.
Art. 33 Corresponding deduction approach
1 If the bank holds equity instruments of a financial sector entity, the deductions shall be made using the corresponding deduction approach. The value of these instruments shall be deducted from the bank's capital component that corresponds to the component at the level of the third-party entity. 1bis Bail-in bonds issued by internationally active systemically important banks in accordance with Article 126a paragraph 1 or corresponding regulations in foreign jurisdictions shall be treated as Tier 2 capital instruments with respect to the requirements of this section. 2 If the bank does not hold any capital for the deduction in the corresponding eligible capital component, or if such capital is insufficient, the deduction shall be made from the next higher capital component.
Para. 1bis — Inserted by No I of the O of 21 Nov. 2018 (AS 2018 5241). Amended by No I of the O of 27 Nov. 2019, in force since 1 Jan. 2020 (AS 2019 4623).
Art. 34 Deductions of exposures in own equity instruments outside CET1 capital
1 The bank's own direct or indirect net long exposures in AT1 capital and Tier 2 capital instruments, calculated in accordance with Article 52, shall be deducted using the corresponding deduction approach. 2 With the corresponding deduction approach in accordance with paragraph 1 for Tier 2 capital instruments, the restricted recognition under Article 30 paragraph 2 (amortisation) shall not apply to securities of the same issue, and nominal values may be netted against each other.
Art. 35 Threshold deductions
1 In the case of threshold deductions, the portion that exceeds the relevant threshold 1, 2 or 3 shall be deducted from capital. 2 Threshold 1 shall amount to 10% of CET1 capital after all adjustments under Article 31 paragraph 3 and Article 32 paragraphs 1 and 3. 3 Threshold 2 shall amount to 10% of CET1 capital after all adjustments under Article 31 paragraph 3 and Article 32 paragraphs 1, 3 and 4, including any deductions from CET1 capital as a result of the threshold 1 calculation (Art. 37 paras. 1 and 2). 4 Threshold 3 shall be determined such that, after the application of all regulatory adjustments, including any deductions at this threshold level in accordance with Article 40 paragraph 1, the remaining amount of the three items under Article 38 paragraph 2 and Article 39 paragraph 1 does not exceed 15% of CET1 capital.
Art. 35 — Amended by No I of the O of 29 Nov. 2023, in force since 1 Jan. 2025 (AS 2024 13).
Art. 36 Applicable deduction approach for equity instruments
1 Whether the deduction approach under Article 37 or that under Article 38 applies to a bank's equity holdings in a financial sector entity shall depend on the percentage of directly or indirectly held equity securities in such entity, calculated in accordance with Article 52, as well as other forms of investment in such securities which synthetically embody the same risk (securities held). 2 Equity instruments which the bank holds in the form of AT1 capital or Tier 2 capital in companies whose equity securities must be deducted in full from CET1 capital in accordance with Article 32 paragraph1 letters h and i and paragraph 4 shall be subject to the procedure under Article 38 paragraph 1.
Para. 1 — Amended by Annex 2 No 4 of the Banking Ordinance of 30 April 2014, in force since 1 Jan. 2015 (AS 2014 1269). Para. 2 — Amended by No I of the O of 29 Nov. 2023, in force since 1 Jan. 2025 (AS 2024 13).
Art. 37 Equity securities in financial sector entities up to 10%
1 If a bank holds a maximum of 10% in equity securities in a financial sector entity in the form of CET1 capital, it shall deduct from its own capital components the portion of the total carrying value of all equity instruments in such financial sector entities which exceeds threshold 1. This shall also apply if the bank holds only equity instruments in a financial sector entity that do not constitute CET1 capital. 2 When applying the corresponding deduction approach, the amount to be deducted under paragraph 1 shall be divided proportionately among the equity instruments held by the bank in the relevant financial sector entities before the deduction. 2bis In addition to the threshold 1 limit under paragraph 1, a bank may hold bail-in bonds in accordance with Article 33 paragraph 1bis up to 5% of CET1 capital without deducting them from its own capital components. FINMA may issue corresponding implementing provisions. 3 The portion of the aggregated carrying values under paragraph 1 th
Para. 1 — Amended by Annex 2 No 4 of the Banking Ordinance of 30 April 2014, in force since 1 Jan. 2015 (AS 2014 1269). Para. 2bis — Inserted by No I of the O of 27 Nov. 2019, in force since 1 Jan. 2020 (AS 2019 4623). Para. 3 — Amended by No I of the O of 29 Nov. 2023, in force since 1 Jan. 2025 (AS 2024 13).
Art. 38 Equity securities in financial sector entities over 10%
1 A bank that holds more than 10% in equity securities in a financial sector entity in the form of CET1 capital shall apply the corresponding deduction approach without thresholds to all AT1 capital and Tier 2 capital instruments of such entities. The corresponding deduction approach without thresholds shall also apply to holdings of bail-in bonds of internationally active systemically important banks under Article 33 paragraph 1bis. 2 It must deduct from its CET1 capital the amount by which the total carrying value of all directly or indirectly held shares in the CET1 capital of such entities outside the scope of consolidation exceeds threshold 2, both at the level of the individual entity and on a consolidated basis. 3 The amount calculated in accordance with paragraph 2 that is below the threshold shall be treated in accordance with Article 40.
Para. 1 — Amended by No I of the O of 27 Nov. 2019, in force since 1 Jan. 2020 (AS 2019 4623).
Art. 39 Further deductions according to threshold 2
1 The bank must separately deduct from its CET1 capital the following amounts that exceed threshold 2: a. mortgage servicing rights; and b. deferred tax assets (DTAs) due to temporary differences. 2 Amounts below the threshold shall be treated in accordance with Article 40.
Art. 40 Deductions according to threshold 3
1 Carrying values which are obtained using the methods in Article 38 paragraphs 2 and 3 and Article 39 and which are below threshold 2 shall be added together and measured against threshold 3. The bank must deduct from its CET1 capital the amount that exceeds threshold 3. 2 The bank must apply a risk weight of 250% to the amounts of the three items under Article 38 paragraph 2 and Article 39 paragraph 1 that are below threshold 3, in accordance with the international standardised approach for credit risk (BIS SA).
Para. 2 — Amended by No I of the O of 29 Nov. 2023, in force since 1 Jan. 2025 (AS 2024 13).
Chapter 3 Additional Loss-Absorbing Capital for Ca
Inserted by Annex No 2 of the O of 23 Nov. 2022, in force since 1 Jan. 2023 (AS 2022 804).
Art. 40a
1 Cantonal banks may issue bail-in bonds in accordance with Article 30b paragraph 6 BankA. 2 These bonds must meet the requirements under Article 126a, as well as the following terms and conditions of issuance: a. The amount of compensation shall be based on the amount by which the claim was reduced. The accrued and written-down interest, as well as the interest that would be payable up to the final maturity of the claim on the corresponding amount, shall be included. b. The obligation to pay compensation is limited in time. The duration and mechanism for payment must take account of the resolution concept and the amount of the compensation; the duration shall be at least ten years. c. The cantonal bank: 1. may pay compensation only if it meets the regulatory requirements after making the payment, 2. must pay compensation if it meets the criteria in paragraph 1 and: - has a defined capital buffer or - distributes funds to the canton in order to cover the latter's costs for refinancing
