Swiss should tighten rules on UBS, CS further-OECD

January 15, 2010

Credit Suisse, UBS: Too big to fail?   By Sven Egenter
   BERNE, Jan 15 (Reuters) – Switzerland should tighten the reins on UBS and Credit Suisse further as a failure of the banks may push the economy over the edge, the OCED said on Friday, backing Swiss regulators in their push for tougher regulation.
   With UBS and Credit Suisse balance sheets combined still at six times the size of Swiss gross domestic product, Switzerland is more exposed than almost any other country to its large banks, the Organisation for Economic Cooperation and Development (OECD) said in its Economic Survey of Switzerland.
   “It should hence be ensured that the capital adequacy and leverage ratios for the two big banks are set such that they are close to the highest actually observed ratios of major international banks,” the OECD said in the report.
   Switzerland has led the global push for tighter banking regulation, especially after its government had to rescue UBS, whose near-collapse triggered fears of an Iceland-style meltdown in the Alpine country.
   Swiss banking regulator FINMA has already introduced higher capital requirements above global standards as well as rules on bankers’ pay and a leverage ratio to limit banks’ scope to grow through taking on debt.
   The two banks have to hold at least 50 percent more capital than currently required under existing international rules by 2013 and twice the international standards in good times.
   Credit Suisse is already fulfilling the rules for good times with a capital ratio of over 16 percent and UBS is also getting close with a ratio of 15 percent in the third quarter.
   But the OECD said Swiss regulators should require that the banks hold two times the global minimum if possible before 2013 and more adjustments should be made as necessary to ensure that the banks’ ratios remain among the highest internationally.
   In addition, regulators should raise the minimum for the leverage ratio — measured as capital to total assets — to four percent from currently three percent on a group level.
   
   CURRENCY CRISIS
   Swiss regulators, led by Swiss National Bank chairman Philipp Hildebrand, are still determined to tighten the reins on the banks despite rising resistance from the country’s powerful banking lobby.
   The OECD said liquidity regulation and oversight should now be a priority, especially given huge liabilities in foreign currencies, which amounted to more than 3 times Swiss GDP of some 500 billion Swiss francs in 2008.
    “Owing to the mismatch of maturities between assets and liabilities, a liquidity shortage in foreign currency could trigger a run by creditors and potentially a currency crisis, the OECD said.
   “The authorities are considering specific foreign currency liquidity requirements imposed on banks,” the OECD said. The Swiss may consider a minimum ratio of liabilities likely to be the most stable relative to foreign currency denominated assets.
   Swiss regulator FINMA will publish its proposals for new rules on banks’ liquidity management in the second quarter.
   
   For the OECD report click: www.oecd.org (Editing by Mike Peacock) ((sven-markus.egenter@thomsonreuters.com; +41.58.306.7351; Reuters Messaging: sven-markus.egenter.reuters.com@reuters.net))
 Keywords: SWISS OECD/BANKS
  
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 Friday, 15 January 2010 09:00:04RTRS [nLDE60D2AX] {EN}ENDS

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[...] since taken its wealth management crown.) UBS and its chief domestic competitor, Credit Suisse, are six times larger than Switzerland’s entire economy—an imbalance reminiscent of the failed banks that decimated the economy and currency of Iceland. [...]