UBS chief signals tussle over big bank regulation

18th June 2010, Comments 0 comments

Thousands of jobs will be at risk if plans for "too big to fail" regulation crimp Switzerland's biggest banks, UBS chief executive Oswald Gruebel warned in a newspaper interview on Friday.

Gruebel's comments opened up a public tussle a day after Swiss central bank chiefs warned that the "big banks" -- commonly regarded as UBS and Credit Suisse -- had not done enough on the issue despite significant reductions in their balance sheet.

The need for "too big to fail" regulation emerged after the financial crisis, amid fears that the collapse of huge banking congolomerates like Lehman Brothers in 2008 could bring down entire economies.

UBS was among the global banks to be hit the hardest by the crisis, plunging to a record 21.8 billion Swiss franc (19 billion dollars) loss in 2008 and relying on a government rescue package to pull out of trouble.

Gruebel told the daily Tages-Anzeiger that plans currently being studied would imply "fundamental change" for the business and force his banking giant to about double its capital base.

"It would put significant pressure on economic growth, there would be fewer loans because each bank would reduce its balance sheet," he said, noting that the new regulations were likely to be in force in five years' time.

"That would also mean that thousands of jobs would go and, for us, low-margin businesses would not be worth it."

The UBS chief said two-thirds of the balance sheets of the big banks, about 1,500 billion francs, would have to be reorganised.

"In all that would mean that both big banks would need about 100 billion more in capital," he added.

On Thursday, Swiss central bank vice chairman Thomas Jordan said that big bank liabilities had been cut by the end of last year to just over four times Switzerland's GDP, compared to six times GDP at the end of 2008.

"Nevertheless, the big banks' share of markets relevant to the Swiss economy -- and hence their systemic importance remains just as high as before," Jordan told journalists.

"In other words Switzerland is still vulnerable and the need for action remains great."

Jordan said the Swiss National Bank fully supported the assessment of the commission of expert drawing up the "too big to fail" plans.

Gruebel suggested that solution might involve isolating branches abroad.

© 2010 AFP

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