UBS, Credit Suisse hit by threat of strict capital rules

Reuters/Zurich/London

UBS and Credit Suisse would have to hold far more capital than international rivals if Swiss lawmakers push ahead with proposals to impose even tougher rules to curb borrowing on the country’s banks.

The potential move is another attempt by lawmakers to force Swiss lenders to go beyond the global standards brought in to avoid a repeat of the 2008 financial crisis, a gold-plated approach known in banking circles as the “Swiss finish”.

Officials in Britain, the US and the Netherlands are also pushing their banks to meet higher standards than the international rules.

Analysts and bankers warned yesterday that if Switzerland’s biggest banks had to meet a higher leverage ratio they could be forced to scale back their activities in important markets like bond trading, putting them at a competitve disadvantage.

Swiss Finance Minister Eveline Widmer-Schlumpf was quoted as saying in a newspaper on Sunday that Swiss banks should be subject to a leverage ratio of 6-10%, against the 3% imposed on global banks under rules that come into force in 2018.

That would mean Swiss banks would have to hold between 6 and 10 Swiss francs of equity for every 100 Swiss francs of assets they had, against the 3 francs of equity that would have been required if Switzerland stuck with the international Basel III regulations.

The Swiss regulator already requires the country’s banks to hold 4.3 francs of equity, more than the global standard, by 2019.

Shares in UBS were down 3.5% and Credit Suisse was down 4.6% at 1242 GMT, underperforming a slightly higher Stoxx 600 European bank index. Both banks declined to comment.

“Over time any such potential move could lead to further shrinkage of the FICC (fixed income, currencies and commodities) division for the Swiss investment banks, especially at Credit Suisse Group,” JP Morgan Cazenove analysts said.

The leverage ratio is an important measure in the suite of rules international regulators drew up with the aim of making banks safer.

After the Swiss government had to bail out UBS, the country’s largest bank, in 2008, regulators imposed tough capital requirements on lenders that went beyond Basel III.

Other countries are also taking a stricter line. In June this year, Britain told its banks to speed up their progress towards a 3% leverage ratio, though stopped short of setting a new deadline.

Dutch Finance Minister Jeroen Dijsselbloem recently proposed a 4% leverage ratio and the US has also been pushing for higher standards.

“We do seem to be seeing a lot of national initiatives and a break away from the global Basel consensus, although Basel has always been intended as a ‘minimum standard’ not a ‘maximum standard’,” said Steven Hall, a London-based partner at KPMG’s risk consulting practice.

Emil Petrov, head of capital solutions at Nomura, said the 6% leverage ratio Switzerland was now considering was consistent with US proposals. Both Petrvo and Hall said that definitions of leverage ratio varied across countries.

“No concrete steps have been taken so far,” a Swiss finance ministry spokesman said, referring to the government’s previous commitment to examine how its post-crisis banking measures compared with international standards and report back by February 2015 at the latest.

Europe ‘should aim to fix liability rules’

Europe should aim to fix liability rules in its new single resolution mechanism (SRM) for failing banks by 2015 rather than by 2018 to avoid uncertainty, European Central Bank Executive Board member Joerg Asmussen said yesterday. “It would be wise to bring forward the liability rules to Jan. 1, 2015, then it would be clear what laws apply,” Asmussen said at an event in Berlin.

Europe is working on the completion of a banking union, its biggest project since the euro, which would include a SRM — a eurozone authority with its own fund that would decide how to wind down or restructure banks that are no longer viable.