UPDATE 1-SNB to decide later on capital buffer for mortgage risk

Thu Dec 13, 2012 5:41am EST

Related Topics

* SNB wants to see "soft landing" of housing market

* Delay before any buffer enters into force

* Concern for banks if Swiss bubble bursts again

* Most home mortgages held by smaller Swiss banks (Adds details, quotes)

BERNE, Dec 13 (Reuters) - The Swiss National Bank expressed renewed concern on Thursday about a booming property market but said it would only decide at a later date whether to force banks to boost their capital buffers against the bubble bursting.

After the SNB's quarterly monetary policy assessment, Chairman Thomas Jordan said the central bank saw a further increase in risks for financial stability from the Swiss residential mortgage and real estate markets.

SNB Vice Chairman Jean-Pierre Danthine added: "We want to contribute to a soft landing. Activating the countercyclical capital buffer is a question of timing."

Earlier this year, the Swiss government announced authorities could force banks to hold an extra 2.5 percent of risk weighted assets to boost their resilience if they see credit growth getting out of control.

Jordan said on Thursday the Swiss government rather than the SNB would announce any activation of that buffer. "This decision will be made at a later point," he said.

Danthine said there would be a delay of anything from three months to a year before any buffer would enter into force depending on how urgent the SNB thinks the situation is.

Real estate prices and mortgage lending have risen strongly in Switzerland in recent years, a by-product of the ultra-low interest rates set by the central bank to lessen the appeal of the safe-haven Swiss franc and prevent a recession.

The SNB earlier kept interest rates close to zero and lowered its inflation forecast, suggesting it sees no need to tighten borrowing costs for the foreseeable future.

Along with cheap borrowing, low unemployment and robust private consumption have fuelled strong rises in house prices and credit.

A Swiss real estate market bubble burst in the early 1990s, causing several banks to run into trouble.

The Swiss government has tightened the regulatory framework for banks since being forced to bail out UBS during the financial crisis when the global lender suffered big losses on U.S. subprime mortgage bets.

UBS and rival Credit Suisse are already subject to capital standards that go beyond those set under the new Basel III global rules. But the bulk of Swiss home mortgages are held by Switzerland's smaller banks, SNB data shows. (Reporting by Silke Koltrowitz, writing by Emma Thomasson)

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