ZURICH/LONDON (Reuters) - Switzerland’s financial regulator has laid out rules that could force the country’s two biggest banks to hold more than double the total capital required by international standards, in its latest effort to ensure the two are protected from future financial shocks.
Regulator Finma published provisional rules on Wednesday that would require UBS to hold total capital worth 19.2 percent of its risk-weighted assets by 2019, while Credit Suisse would have to meet a 16.7 percent ratio.
By comparison only 8 percent is required under the global Basel III accord.
The requirements are designed to insulate Swiss banks from a repeat of the five-year-old financial crisis that triggered massive losses and focused the attention of the world’s policy-makers on making sure banks were no longer “too big to fail”.
But the eye-watering levels are not likely to ever become real requirements, because Swiss banks are shrinking so quickly by scaling back or exiting some business areas, reducing the need for bigger capital buffers.
The Swiss banks must only meet Finma’s capital levels if their balance sheets remain at the size they were in 2012 and the regulator said it was “not unreasonable” to assume the ultimate requirements would drop as the banks continue to pare back their operations.
Some analysts noted the new stipulations had been expected.
“This legislation has been well-flagged,” said Matt Spick, a London-based analyst with Deutsche Bank. “The banks are allowed to include balance sheet reductions as reducing their ‘too-big-to-fail’ targets.”
Kian Abouhossein, head of European banks research at JP Morgan, agreed. “We don’t think this changes anything,” he said, adding that Swiss capital levels will be the “toughest in the world”.
UBS’s total assets fell 22 percent from end-2012 to March 2014. Credit Suisse’s fell by about 5 percent.
On Tuesday, UBS told investors it expected its ultimate requirement to be 17.5 percent.
UBS and CS declined comment on Finma’s statement on Wednesday.
Spick noted there were tougher targets in some respects in some parts of the world, such as Sweden, and added that the most pressing part of the capital requirements was for the “common equity Tier 1” component, the purest kind of capital, where the Swiss requirements are in line with international norms.
A second capital requirement from the Swiss regulator says UBS should confine its total balance sheet to less than 22 times capital, while Credit Suisse has to keep its to 25 times. The so-called leverage ratio has not yet been set internationally but is likely to be at least 33 times.
UBS has a higher capital requirement because of its higher market share in Switzerland, Finma said.
Editing by David Holmes