Reliance on the financial sector has led Switzerland to introduce tough new regulations. UBS and Credit Suisse could see these become even stricter if they increase their market share
Switzerland’s financial regulatory body Finma has recently set out plans to strengthen the country’s banking regulations, including an increase in various different capital requirements. Since then, however, the head of the body has stated that the country’s two biggest banks – Credit Suisse and UBS – would be forced to further increase their capital requirements.
Switzerland’s economy is heavily skewed towards its banking sector, leading to concerns that of the impact of another financial crisis.
The regulatory requirements announced in mid-October will bring total capital requirement based on risk-weighted assets will also rise from 19 percent to 28.6 percent. The new rules will also require what banks hold of their exposures in going and gone concern capital to rise from less than five percent to 10 percent. New requirement for loss absorbing capital were also announced as part of the plan, meaning taxpayers should not have to bailout financial institutions should any new crash arise in the future. Further, Switzerland’s leverage ratio closer will be brought in line with global banking standards, at around five percent. The UK currently has a ratio of four percent, while the US’S sits at around five percent.
However, according to Mark Branson, Chief Executive of Finma, the leverage ratio will rise even further if the country’s banking giants expand their size further. “If the size were to expand, the capital requirement would gradually rise,” Mr Branson told the LUMINARY in an interview, suggesting that the rate would be at around 5.5 to six percent. “Once you go over certain thresholds, you come into the next bucket,” he continued.
Switzerland’s economy is heavily skewed towards its banking sector, leading to concerns that of the impact of another financial crisis. The country’s banking monoliths were heavily hit by the 2008 financial crisis, after losing large amounts on mortgage loans.