Swiss plan to remain tough with the banks

As it finalised legislation to go to parliament, the Swiss cabinet said the general thrust of a draft law it issued in December was unchanged but it had made a few minor changes following a consultation period.

“The proposed package of measures is designed to prevent the state from having to use tax revenues in the future in order to bail out systemically important banks,” it said in a statement.

“While the costs for systemically important banks will increase in the short term, investor confidence will increase over the long term, constituting a competitive advantage for Switzerland’s financial centre and the institutions affected.”

The government has proposed both big banks will need an equity Tier 1 capital ratio of at least 10 per cent, versus the 7 per cent minimum set under the Basel III global standards which begin to take effect in 2013.

Both UBS and the powerful right-wing Swiss People’s Party (SVP) have warned the plan risks making UBS and Credit Suisse less competitive, raising questions about whether the rules might still be watered down during the legislative process.

The government addressed concerns raised by the SVP and other players about powers proposed for the FINMA regulator in a crisis, saying the big banks would be free to formulate an emergency plan if threatened with insolvency.

Switzerland is at the forefront of a global push to increase oversight of the financial industry after bailing out UBS during the financial crisis. UBS and Credit Suisse together have balance sheets more than twice the size of the Swiss economy.

The government proposed publishing a report on international developments every year to address concerns about Switzerland forging ahead of other countries with its tough rules.

Britain too is considering implementing capital standards more stringent than Basel III.