UPDATE 1-Swiss govt seeks to prevent future bank crisis
* Swiss bank rules to be based on commission report
* Govt says must also improve coordination with regulators
* Says to work on concept to deal with future crisis
(Adds further govt plans, details, background)
By Sven Egenter
ZURICH, Oct 13 (Reuters) - The Swiss government has set out to improve its crisis management and prevent events like the near-collapse of the country's largest bank UBS (UBSN.VX) through tougher regulation and better coordination.
The finance ministry will draft a bill for tougher rules for the country's two global banks, UBS(UBSN.VX) and Credit Suisse(CSGN.VX), by early 2011 based on recent proposals from a high-profile commission, the government said in a statement on Wednesday.
A commission of top regulators, bank managers and government officials suggested earlier this month that the two large banks should hold more capital than international rivals to prevent a bank failure crippling the Swiss economy. [ID:nLDE6920GP]
In addition, the government aims to improve the coordination between the finance ministry, bank regulator FINMA and the Swiss National Bank in order to prevent future crises.
The Federal Council -- the highest Swiss executive body made up of seven ministers from all major parties -- was heavily criticised for a lack of leadership during the bailout of UBS at the height of the financial crisis and a year-long legal wrangling with the United States, where UBS faced a harmful tax case in court.
In a response to suggestions from a parliamentary commission looking into the government's reaction to the crisis, the council said regulators and the finance ministry should exchange information and coordinate their international contacts more.
The government also wants a concept for crisis management across ministries and to create an early warning system. Intelligence services should also help to detect potential threats to Switzerland's interests early on.
The government, in another statement, said it agreed with the parliamentary commission that bank regulation needed to be tightened in order to improve the resilience of the financial system, pointing to the suggestions from the expert commission.
The government said the finance ministry would prepare a bill with tougher bank rules for consultation by the start of 2011.
The final report of the "too-big-to-fail" commission was a good basis for a bill, the government said.
"The Federal Council believes that the proposed combination of measures lays a sound foundation for tackling the economic risks posed by big banks without interfering excessively with the banks' business models," it said.
The commission has suggested that UBS and Credit Suisse should hold an equity Tier 1 capital ratio of at least 10 percent and an additional 9 percent, part of which must be in so-called contingent convertible bonds.
The government said the federal department of finance would examine how the tax framework conditions for contingent convertible bonds (CoCos) could be improved, so that such bonds could increasingly be issued on the domestic market.
While Credit Suisse has voiced confidence that it could issue enough CoCo bonds -- which are converted into equity in a crisis upon a defined regulatory trigger -- UBS is sceptical about the size of a future CoCo market. (Editing by Susan Fenton)