FACTBOX-New Swiss bank rules and proposals discussed

Oct 29 (Reuters) - Swiss regulators are set to keep the lead on stricter bank regulation despite growing competition concerns among bankers, thanks to strong political support for tighter reins on UBS(UBSN.VX) and Credit Suisse(CSGN.VX). Switzerland has led the global campaign for tougher rules, starting to draw up stricter capital requirements as early as spring 2008, even before it had to bail out its flagship bank UBS in the wake of the Lehman Brothers collapse in autumn 2008. Following are some key facts about new Swiss rules, proposals discussed and issues going forward:

CAPITAL REQUIREMENTS

Swiss regulator FINMA requires UBS and Credit Suisse to have a capital ratio in good times of 16 percent of risk weighted assets -- a 100 percent top-up to international minimum standards set by the current Basel II agreement.

The capital ratio may fall to 12 percent capital in tough times before FINMA will call on the banks to take action.

Both banks have until 2013 to comply though both are already above the minimum and especially Credit Suisse is one of the best capitalised banks in the world.

FINMA also introduced a leverage ratio, curbing banks' ability to grow through incurring debt. The banks must meet a minimum of 3 percent on a group level and 4 percent on a bank level. The leverage ratio has to be higher in good times. www.finma.ch/archiv/ebk/e/publik/medienmit/20081204/mm-em-leverageratio-20081204-e.pdf

POTENTIAL ADJUSTMENTS

Swiss capital rules may have to be adjusted to new guidelines from the Basel Committee on Banking Supervision, which wants to publish concrete proposals by year-end.

Credit Suisse has said it expects changes to the international rules to shave off 200 basis points of its current tier 1 capital ratio of 16.4 percent.

In its outline for a new framework, the Basel committee calls for an increase in quality capital, which may lead to a reduction of hybrid capital counted as tier 1.

Some 32 percent of Credit Suisse's tier 1 was hybrid capital by the end of the third quarter. In the case of UBS, some 23 percent was in form of innovative instruments at the end of the second quarter.

Swiss regulators also so far allow domestic loans to be stripped out when calculating the leverage ratio, a political concession made to address concerns that discouraging such loans could exacerbate any risk of a credit crunch.

Finally, deferred taxes count as an asset under current Swiss rules when calculating the leverage ratio, which may change too, with new international rules.

REMUNERATION

Switzerland was again one of the first countries to propose a detailed framework on how to regulate bankers' pay. After the usual consultation process with the industry and other stakeholders, final proposals are due later this year.

Under preliminary proposals, FINMA says Swiss banks must link staff bonus plans to long-term performance by 2011 to limit excessive risk-taking,.

FINMA also requires banks to be more transparent and publish a remuneration report.

(For more details on the proposals click: www.finma.ch/e/aktuell/pages/mm-rs-verguetungssysteme-20090603.aspx)

In the consultation process, banks and industry groups have said the proposals were too detailed and warned they may put the Swiss banks at a disadvantage in the global fight for talent.

(for details on the reactions click: www.finma.ch/e/regulierung/anhoerungen/Pages/stellungnahmen.aspx)

Nevertheless, Credit Suisse has become the first major global bank to adjust its remuneration policy to the principles outlined by the G20 group of leading countries, and UBS is also making changes to the bonus system. [ID:nN20433456] [ID:nLR11973]

LIQUIDITY

Swiss regulators have called for stricter rules on the two big banks' liquidity holdings.

FINMA is currently in discussions with the banks and no details have become public at all so far.

TOO-BIG-TO-FAIL

Finally, the SNB's designated Chairman Philipp Hildebrand has pressed for a solution to the too-big-to-fail issue, calling for international rules to orderly unwind a bank in a crisis.

But the SNB -- in charge of financial stability in Switzerland -- has also put out possible national solutions, something banks and the banking lobby are highly critical of.

One option Hildebrand has repeatedly raised, is to require banks to change their structure and delineate different functions in order to allow splitting up some parts in a crisis.

Some politicians have called for a separation of foreign activities from domestic ones. Others want the banks to separate investment bank business from their other activities..

As an ultimate resort, governments may have to limit the size of systemically relevant banks directly or indirectly, Hildebrand has said.

(Reporting by Sven Egenter; editing by Stephen Nisbet)