Swiss may go further than Basel III for UBS and CS

ZURICH Mon Sep 13, 2010 4:06am EDT

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ZURICH (Reuters) - Swiss regulators indicated on Monday that they might go beyond new global banking rules unveiled at the weekend and instead impose stricter requirements on the country's top banks, UBS and Credit Suisse.

Global regulators, aiming to prevent any repeat of the international credit crisis, agreed on Sunday to force banks to more than triple the amount of top-quality capital -- known as core Tier 1 -- they must hold in relation to their lending.

Top officials at Swiss financial regulator FINMA and at the Swiss National Bank backed the so-called Basel III reform package but said the new set of rules did not go far enough in addressing the problem of how to stop a big bank's failure dragging down the whole country's economy.

"While the reform package is far-reaching, it does not yet comprehensively address the "too-big-to-fail" problem," Swiss National Bank Chairman Philipp Hildebrand said in a statement.

"For Switzerland, the Basel III reform package provides a solid foundation on which to build a comprehensive national regulatory response to the 'too-big-to-fail problem'."

FINMA vice-chairman Daniel Zuberbuehler also said "further efforts on that issue will have to be made."

Analysts believe regulators will ask the two Swiss big banks to go one step further than their international competitors. This has been the case also in the past, when Credit Suisse and UBS had to comply with the "Swiss finish," a domestic layer of bank capital regulation that went above international standards.

"I think it's likely (Swiss regulators) will go slightly above the new Basel standards, as has been the case in the past," said Daniel Bischof, an analyst at Bank Sarasin.

Helvea analyst Peter Thorne said the additional Swiss buffer may amount to a further 2 to 3 percentage points of core Tier 1 in their capital adequacy ratios.

But this should not be a major hurdle for the Swiss banks: "Retained earnings easily allow them to get there," he said.

A government commission is scheduled to present the tighter Swiss rules by the end of September.

GOING A STEP FURTHER

Previous Swiss bank capital rules required banks to hold a minimum Tier 1 regulatory capital ratio of twice as much as the old Basel standard of 4 percent of risk-weighted assets. But the new rules shift the focus to core Tier 1 capital, a more liquid part of regulatory capital consisting of equity and retained earnings.

Under Basel III banks must have a core Tier 1 capital ratio of at least 4.5 percent of risk-weighted assets. They will also have to hold a capital buffer of common equity of 2.5 percent of assets, bringing the total top-quality capital requirement to 7 percent.

Another new provision of Basel III will require banks to build a separate "countercyclical buffer" ratio of between zero and 2.5 percent of assets when the credit markets are booming.

Under the "Swiss finish," core Tier 1 ratio requirements could rise to around 12 percent in Switzerland. But this cannot immediately be compared to current ratios as the definition of risk-weighted assets is also changing.

Switzerland's top banks, already better capitalized than global peers, have all along been anticipating stricter rules.

UBS, Switzerland's largest bank by market capitalization, had a core Tier 1 ratio of 13 percent at the end of June. For Credit Suisse this level was 11.4 percent.

UBS's chief financial officer John Cryan told analysts in July his bank was aiming to reach a core Tier 1 ratio of 16 percent and planned to retain dividends mid-term to achieve this goal.

Credit Suisse said it expected retained earnings and a longer phase-in process for the new rules to allow it to comply to the new rules "without having to materially change our growth plans or our current capital and dividend policy."

(Editing by Greg Mahlich)

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