Switzerland’s UBS and three other systemically relevant banks must face tougher capital requirements, the Swiss government said yesterday, in an effort to shield the country from a repeat of the collapse of Credit Suisse.
The Swiss government pitched 22 measures for direct implementation in 209 pages of recommendations on how to police banks deemed “too big to fail” (TBTF). It stopped short of saying how far stricter capital requirements should go.
“This is firstly about having additional preventative measures so that a bank can’t even get itself into the kind of hopeless situation we saw with Credit Suisse,” Swiss Finance Minister Karin Keller-Sutter told a Press conference.
Switzerland’s plan will come under close scrutiny at home and abroad because if UBS were to unravel, there are no local rivals left that could absorb it. A bailout and nationalisation would likely cause serious damage to public finances.
At around $1.7 trillion, the UBS balance sheet is now double the size of Switzerland’s annual economic output, giving it an exceptional weight for a major economy.
“The quantitative and qualitative capital requirements for systemically important banks should be tightened in a targeted way and supplemented with a forward-looking component,” the government’s report said.
The increase in requirements for UBS will be “substantial, especially if UBS were to retain its current size and structure, or even grow,” it added. UBS declined to comment on the report.
UBS shares fell 2.7 per cent yesterday after it dropped as much as 4 per cent and trading was briefly halted. The stock is still up by about 58pc since it took over Credit Suisse in a government-backed rescue last year. The Stoxx Europe 600 Banks Index has gained about 37pc in the same period.
The Credit Suisse takeover was the biggest merger of banks of systemic importance since the 2007-9 financial crisis and Swiss banking culture is under scrutiny. The lower house of parliament last month backed a motion to claw back pay from senior managers if banks are rescued by public money.
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