Three sixes in a row may strike fear into Christians, but they probably shouldn't for Credit Suisse and UBS. Switzerland's lower house on September 24 voted to raise capital-to-assets ratios for domestic banks to six per cent - higher than for peers in some other countries. What it means hinges on how the Swiss define capital.
At present, Switzerland allows banks to count common equity and a relatively wide range of contingent capital towards their leverage ratios. In contrast, the Basel-based Bank for International Settlements' global rules exclude so-called Tier-II instruments. So, while Credit Suisse and UBS had Swiss leverage ratios respectively of 4.3 per cent and 4.7 per cent in June, their Basel leverage ratios were only 3.7 per cent and 3.6 per cent.
Given a couple of years, both banks could probably reach six per cent on the Swiss basis easily enough. Based on the rate their ratios increased in the six months to June, UBS might be there next year and Credit Suisse by mid-2017.
Hitting six per cent under Basel strictures would be harder. Swiss politicians may not appreciate the distinction, but it is notable that American leverage rules were toughened a year ago to more closely conform to Basel's. Worryingly for Credit Suisse and UBS, the US requirement is also six per cent for banking units - implying the Swiss version is softer.
Help may be at hand, though. The Financial Stability Board convenes in November to agree global rules on bail-inable debt, known as Total Loss Absorbing Capacity (TLAC). Draft TLAC rules have also introduced a six per cent minimum level for leverage ratios, but these allow banks to count the entirety of their capital stack.
Given a panel of independent Swiss experts recommended only that the leverage requirement be raised, not by how much, Switzerland's upper house could reject the lower chamber's proposal anyway. Credit Suisse unsurprisingly wants the government to follow the UK, which has given its banks until 2019 to reach a ratio of no more than 4.95 per cent, albeit on slightly different terms. The devil may be in the detail - but for Swiss banks he could well be far from dastardly.
