Switzerland introduces stricter rules for banks

4 December 2008

GENEVA – Switzerland’s Federal Banking Commission on Thursday said banking giants UBS and Credit Suisse had agreed to stricter capital adequacy rules aimed at helping them cope with future crises.

By 2013, the banks would have to fulfil a capital adequacy ratio that is up to twice as high as the international minimum requirements.

The ratio measures a bank’s capital in relation to the risks it is likely to incur in its operations.

In addition, the banks would have to comply with a leverage ratio that limits the sum of assets financed by debt, thereby capping the risks undertaken.

"The higher capital adequacy requirements and the introduction of a leverage ratio will equip the banks to better face future crisis," said the commission.

"The increased capital buffers will not prevent crises, but they will improve the banks’ ability to absorb any losses they sustain," it added.

UBS and Credit Suisse have both sustained heavy losses due to the United States subprime crisis.

UBS has written down billions in assets and was even forced to take on an aid package from the state worth almost USD 60 billion (CHF 71.5 billion).

Credit Suisse meanwhile on Thursday also announced a steep loss of CHF 3.0 billion at the end of November and said it would make massive job cuts.

The commission’s head Daniel Zuberbuehler described the new capital requirements as "forward-looking" and "ambitious".

"International standards will go in the same direction: substantial increases in capital adequacy levels for global banks and supplementing the risk based capital framework with a simple metric such as the leverage ratio," he said in a statement.

[AFP / Expatica]