Switzerland to propose stricter bank rules
Berne, April 20, 2011
The Swiss government looks set to push ahead with plans to make UBS and Credit Suisse reach tough new capital standards despite warnings they could make the banks uncompetitive.
The Swiss cabinet, which operates on the basis of consensus and has already put out a draft law, is expected to announce its formal recommendation to parliament at a press conference later on Wednesday.
The government is likely to stick to its main proposal: both big banks will need an equity Tier 1 capital ratio of at least 10 percent, versus the 7 percent minimum set under the Basel III global standards which begin to take effect in 2013.
Both UBS and the right-wing Swiss People's Party (SVP), which holds the most seats in parliament, have warned the plan risks making banks less competitive than foreign peers, raising questions about whether the rules might be watered down.
Switzerland is at the forefront of a global push to increase oversight of the financial industry after bailing out UBS during the financial crisis. UBS and Credit Suisse together have balance sheets more than twice the size of the economy.
"We have a particular situation in Switzerland given the importance of the financial industry and the dominance of both big banks," Mark Branson, head of the banking division at the Finma regulator, told the Finanz und Wirtschaft newspaper.
"We need to properly limit the risks that both these institutions could pose for the economy as a whole and I would prefer that Switzerland influences the international discussion than the other way round."
Britain too is considering implementing capital standards more stringent than Basel III, though these would apply only to big retail banks.
The comparatively more lenient treatment of investment banks by Britain is providing further ammunition to those lobbying to lessen the so-called "Swiss Finish".
UBS chief executive Oswald Gruebel has said the stiff Swiss standards could force UBS to move units abroad. In contrast, Credit Suisse has termed the proposed standards "tough but doable" and has already started issuing contingent convertible (CoCo) bonds that can count towards a requirement that the banks must hold a further 9 percent of capital.
The finance ministry hopes the matter will be voted on by the end of the year. Yet with Switzerland gearing up for elections on October 23, the question of how much capital banks should hold and the future role of financial industry will probably be subject to heated debate and the proposals may still be amended or delayed. - Reuters