ZURICH, (Reuters) – The Swiss government plans to create a new safety net to cover the payment of cash if one of the nation’s major banks fails. It is doing this to help strengthen lenders’ resilience in times of crisis and to limit economic instability from bank failures.

Switzerland is one of many countries that has “too big for failure” rules. These were established after the Global Financial Crisis. They are designed to protect major banks from financial shocks by ensuring they have sufficient capital and liquidity.

The U.S. regulatory authorities and European ones have made it a top priority to solve the TBTF crisis. This is after many banks in the United States, such as UBS (the largest bank in Switzerland), were rescued by taxpayers.

However, the Swiss government warned that it was possible for a bank to fail and would have difficulty resolving matters in an orderly fashion.

The government stated that even with greater liquidity requirements, it is possible for a bank to have liquid assets insufficient to resolve a problem. To increase confidence among market participants in the bank’s ability to survive and to recapitalize it, it plans to add temporary liquidity through a public liquidity backupstop.

In order to ensure banks have cash access in times of crisis, liquidity backstops are used.

Proposed backstop by the government would enable the Swiss National Bank, as a form of state-guaranteed loans, to finance any systemically important bank should it fail.

UBS is Switzerland’s 2nd-largest lender Credit Suisse (SIX) is considered systemically significant, along with unlisted lenders Raiffeisen Group and Zuercher Kantonalbank, and PostFinance.

A public liquidity backupstop, which is internationally recognized, should be part of the “standard crisis toolkit,” said the Swiss government. However, it cautioned that this shouldn’t be mistaken for a state bailout.

The finance ministry was given the task of drafting legislation before mid-2023.