Swiss banks needs tougher rules-SNB's Hildebrand

* Size of Swiss banking sector means tougher rules needed

* Impetus for reform wanes as crisis subsides

* Banks should support regulation, not fight it

GENEVA, Nov 18 (Reuters) - Switzerland is in urgent need of
tougher regulatory standards than other countries given the size
of its banks relative to its economy, Swiss National Bank
Vice-Chairman Philipp Hildebrand said on Wednesday.

"Not all countries are confronted with the same urgency for
reform as we are in Switzerland," Hildebrand, who takes over as
SNB chairman next year, said in the text of a speech he was due
to deliver at the University of Geneva.

The SNB has lead a global push for tougher rules for large
banks and Swiss regulators have already put tighter capital
requirements in place.

However, officials of the two large Swiss banks,
UBS(UBSN.VX) and Credit Suisse(CSGN.VX), have warned that tight
Swiss rules may put them at a competitive disadvantage and have
urged close coordination with other international regulators.

Hildebrand said the SNB was working hard to contribute to
international reform efforts to try to ensure a level playing
field, but said Switzerland might need more, noting that total
banking assets are more than seven times gross domestic product.

"Given the size and importance of our banking sector, our
country is particularly vulnerable to a financial shock.
Agreeing on an international common denominator of regulatory
reform may turn out to be insufficient for the Swiss case."

"Given the particular situation in Switzerland,
higher-than-average regulatory standards are warranted," he
said, adding that financial stability was a crucial for the
success of the key Swiss wealth management industry.

"It is interesting and certainly promising to note that the
two big Swiss banks now emphasise their strong capital position
as an important competitive advantage," he said.

Credit Suisse had a Tier 1 ratio of 16.4 percent at the end
of September, making it one of the best capitalised banks in the
world. Rival UBS reported a Tier 1 of 15 percent at the end of
the third quarter. Both banks have substantially shrunk their
balance sheet in the aftermath of the credit crisis.

Hildebrand warned that as the financial crisis waned and
banks returned to profit, the impetus for reform would lessen.
He called on banks to help reform rather than resist it and
asked politicians to address the "too big to fail" problem.

"As the situation improves, complacency can easily become
the rule of the game. We will forget the severity of the crisis
and fall prey to lobbying by a powerful and recovering financial
industry," he said. "We must not let this happen."

"If we fail to reform fundamentally the financial system and
the position of the largest systemically relevant firms in that
system, we will undermine one of the most basic mechanisms of
any market economy, namely that of punishing failure."
(Reporting by Emma Thomasson; Editing by Victoria Main)