Swiss lawmakers vote to demand their biggest banks hold more capital

[ZURICH] Switzerland's lower house of parliament, the Nationalrat, has approved proposals for the country's biggest banks to hold more capital and separate riskier parts of their business from the rest of the bank.

Solving the "too big to fail" problem has been a priority for regulators in the United States and Europe after several banks, including Zurich-based UBS, were bailed out in the 2007-2009 financial crisis.

On Thursday the Nationalrat voted through a proposal that Switzerland's biggest banks, including UBS and Credit Suisse, will be required to have a 6 per cent leverage ratio - the amount of core equity capital a bank holds as a percentage of its total lending, or 'exposure'.

Switzerland's upper house will now discuss and vote on the proposals in the next three to six months, a spokesman for parliament said.

If the upper house approves the measures and they are not challenged in a referendum, Switzerland's seven-member government will then write them into law.

The basic leverage ratio prescribed for banks under the global Basel rules is 3 per cent from 2019, with some jurisdictions such as Switzerland, the United States and the UK, insisting that their biggest banks will have to hold more than that.

Switzerland has been expected to hold off on laying out tougher capital requirements for its biggest banks until later this year, as international standards could be revised.

An expert panel said last year that UBS and Credit Suisse should be subject to a higher leverage ratio.

Banks give different forms of leverage ratio and the Nationalrat did not specify which target should be raised but at the end of the second quarter UBS had a Swiss leverage ratio of 4.7 per cent while Credit Suisse's was 4.3 per cent.

Switzerland will often gold-plate international requirements with a "Swiss finish" but banks and regulators have disagreed on the need for tougher targets than the global industry standards.

The Nationalrat also waved through proposals on Thursday that the banks should ringfence proprietary trading operations from their main banking and wealth management businesses.

UBS and Credit Suisse no longer have proprietary trading operations. Other banks which would be subject to the new rules include Raiffeisen, Zuercher Kantonalbank and PostFinance.

A spokesman for UBS declined to comment on the proposals.

Credit Suisse said in a statement that the timing of new Swiss rules should be in line with global developments and that Switzerland should follow Britain's approach.

The Bank of England proposed a new ratio requirement last year based on three things: a minimum level of 3 per cent, a supplementary buffer for "systemically important" banks, and an additional "countercyclical buffer" that would be imposed when the economy is strong.

REUTERS