Swiss banks fear more ‘shackles’ alongside new Basel rules

For years Switzerland’s bankers vaunted the “Swiss finish,” an extra buffer they are required to keep in reserve that helps convince customers that Swiss banks are safer than houses.

But Swiss bankers now fear that new domestic regulations could dent their competitiveness by setting prohibitive hurdles compared to those faced by other major international banks.

International regulators this month agreed on tougher “Basel III” capital requirements for banks to protect against financial crises.

Swiss regulators have signalled that they would raise their standards even further, especially for the two biggest banks, UBS and Credit Suisse.

The Swiss Financial Markets Authority (FINMA) is due to publish its long-delayed proposals for a post-crisis revamp of domestic requirements at the end of September.

“We’re all waiting to see what recommendations this report comes out with,” a spokesman for the Swiss Bankers Assocation, James Nason, told AFP, warning that the banks did not want to be “shackled.”

The “Swiss finish” already imposes a 20 percent higher capital buffer than the existing international regulation.

As the financial crisis struck, FINMA obliged UBS and Credit Suisse in December 2008 to bolster their capital even more — to levels 50 to 100 percent above the current Basel II standard.

The two banks are regarded as “too big to fail,” so big that the collapse of one or the other in the event of a severe crisis could harm the Swiss economy as a whole.

The FINMA report by a commission of experts should cover banks of systemic importance, a spokesman for the authority said.

However Nason said it was still uncertain whether FINMA would demand a new “Swiss finish” above Basel III on all banks, as well as tougher requirements for the biggest.

“It’s an open question whether FINMA wants to recalibrate,” he said.

In volatile times, bankers are less prone to promote the merits of the “Swiss finish.”

“It’s a double-edged sword,” Nason explained, while acknowledging that it could be a marketing asset.

This month association president Patrick Odier, a private banker, warned against “excessive rigour” and urged care for a Swiss asset that foreign investors prize, its stable regulatory environment.

“The priority is on international coordination. We categorically refuse that Switzerland should go it alone,” Odier said at an annual bankers’ meeting.

Banks readily highlight the importance of financial services for the Swiss economy — about 12 percent of Gross Domestic Product, 200,000 employees and 15 percent of national tax revenue.

It is precisely that weight that prompts regulators to shudder at memories of the collapse of a seemingly unassailable giant like Lehman Brothers and the swift Swiss state rescue plan for UBS in the financial crisis.

Overall banking assets are valued at eight times Switzerland’s GDP.

Swiss central bank chairman Philipp Hildebrand called Basel III “a solid foundation” on which to build a complete national response to the issue of systemic banks.”

Under Basel III, requirements for top quality Tier One capital cover were raised to seven percent, instead of two percent beforehand, and analysts expect FINMA to advocate a top-up for Swiss banks.

Peter Thorne of Helvea predicted that the two big banks could face a Tier One floor 2.5 percentage points higher than the new Basel III requirements.

They should “not have too much trouble respecting this requirement,” he added.

Credit Suisse and UBS said in their second quarter results that their Tier One ratios stood at 16.3 and 16.4 percent respectively under the current definition.

“Basel III rules are not really that hard from the Swiss perspective. Here we will go further,” predicted Jan-Egbert Sturm, director of the KOF Swiss Economic Institute.

“It could also be an advantage. Switzerland is already a safehaven. If our banks had tougher rules, other countries may feel we really are the safehaven,” he added.

On Thursday, Deutsche Bank chief executive Josef Ackermann warned national regulators not to exceed Basel III standards, arguing that it could force banks into a “race to the top” and harm lending, the Financial Times reported.