Big Swiss banks must face tougher capital hurdle: commission

4th October 2010, Comments 0 comments

Swiss government-appointed experts said Monday that capital standards should be imposed on Switzerland's two biggest banks, UBS and Credit Suisse, that far exceed new international "Basel III" proposals.

"Compared with the minimum requirements of Basel III, the Commission's proposals require the big banks to hold around 40 percent more common equity and around 80 percent more total capital," the commission of experts said in a statement.

The financial experts recommended in a report that the capital ratio for the two banks should amount to 19 percent of risk-weighted assets, including 10 percent in high-quality common equity.

The Swiss central bank and the regulator, the Financial Markets Authority (FINMA), welcomed the proposals and said they should be implemented swiftly.

"The Swiss National Bank and FINMA regard it as absolutely essential that the committee's proposals are implemented in their entirety," they said in a statement.

Analysts worldwide have been on the lookout for such domestic proposals, after regulators in Britain and the United States signalled that they would like tougher standards than Basel III as well.

The Swiss commission estimated that the two big banks would be required to set aside a total of some 75 billion Swiss francs (56 billion euros, 75 billion dollars) each, or five percent of their balance sheet.

But they insisted that the economic benefits of the proposals, which would be enforced in the same timeframe as Basel III, by the end of 2018, would outweigh the costs.

Credit Suisse and UBS are regarded as "too big too fail" because of their size and influence on the Swiss economy.

UBS, then the biggest of the two, had to be shored up during the financial crisis by a multibillion dollar state rescue package.

The Basel III plans drawn up by central banks and regulators in the wake of the collapse of banks during the financial crisis will be submitted to the Group of 20 (G20) summit of major industrialised and developing nations in South Korea in November.

Under those international proposals, requirements for banks' top quality Tier One capital cover will rise to the equivalent of seven percent of their risk assets from the current two percent.

Credit Suisse and UBS signalled that they were prepared to meet the higher hurdle proposed under the new Swiss standards.

Credit Suisse noted that the requirements would go "well beyond" the Basel III proposals announced last month.

"Credit Suisse believes that, despite these very tough measures, it can meet the new requirements within the prescribed timeframe by building capital through earnings and by issuing contingent convertible bonds," the bank said.

UBS said it had worked with the commission and was "well positioned to fulfil the new requirements and capital regulations within the transitional period and well before the proposed effective date of 2018, without raising common equity."

© 2010 AFP

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