Switzerland’s Federal Banking Commission will go ahead with a plan to cap the amount of assets that UBS AG and Credit Suisse Group AG can accumulate in relation to their capital, Chairman Eugen Haltiner said.
“We are going ahead with the leverage ratio,” Haltiner said in an interview at a conference in Zurich today. The commission has received the banks’ replies to its proposal and is now discussing details, such as an exact definition of the ratio, he added. “We plan to introduce the new rules by the end of the year at the latest.”
Switzerland’s two biggest banks may have to cancel dividends, stop share buybacks, shrink balance sheets and raise fresh capital to satisfy new requirements, analysts including Morgan Stanley’s Huw van Steenis have estimated. Credit Suisse has criticised the proposal as one-sided and endangering the competitiveness of the country’s banks.
Discussions with the banks at the moment centre on what assets to include in calculating a leverage ratio requirement, whether assets held outside of the balance sheet need to be included and whether government bonds may be excluded from calculations, Haltiner said. The commission is also addressing different accounting standards that banks use.
“We are eager to learn the position of the banks,” Haltiner said. “I can assure you that competitiveness will stay in our mind.”
UBS and Credit Suisse, whose assets exceed the country’s annual gross domestic product seven times, have seen their capital-to-assets ratio fall to about 2.5 per cent last year from 7 per cent in 1995, the Swiss National Bank said in its annual financial stability report. In the US, banks must have at least 5 per cent, the central bank said.
‘Low-Capitalised’: The two Swiss banks and German rival Deutsche Bank AG are “very low-capitalised” compared to their US peers, Haltiner said. Capital “at least has to come up to a level that is competitive internationally, which is not yet the case.”
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Haltiner declined to say how high the new capital requirement may be. The UK Financial Services Authority may also be considering tighter capital requirements for banks, he said.
“We had a good dialogue with the FSA and their first reaction was that capital wasn’t the first priority because the problems of UK banks were on the liquidity side,” he said. “In the meantime, the FSA is also reconsidering capital requirements.”
Current regulation in Switzerland prescribes that at least 8 per cent of the banks’ assets, weighted according to their risk, must be backed by capital at all times. The banking commission also expects banks to have at least 20 per cent in excess capital.
‘Made a Mess’: Risk-weighted capital rules “made a mess in the end”’ because they didn’t require capital to be held against assets such as sub-prime mortgages, relying purely on bonds’ ratings, Haltiner said. UBS, which took more than $43 billion of sub-prime- related writedowns, had to raise almost $28 billion of capital from shareholders and investors in Singapore and the West Asia this year.
The banking commission doesn’t want to “throw overboard” current rules, “but in addition we need a broader screen to follow what is going on the balance sheets of large banks,” Haltiner said. The commission has said previously that banks will have a transition period to adopt new requirements.