Final polish

30 September 2010 By Nicholas Paisner

Regulators want the country’s two biggest banks to hold more capital than the new Basel minimum. Switzerland is rightly nervous about another blowup. But unless other countries follow suit, UBS and Credit Suisse may find it tough to compete in some areas of investment banking.

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A commission of experts appointed by Switzerland's Federal Council to deal with the "toobigtofail" issue will release a report on Oct. 4.

The commission is expected to recommend that Switzerland's two largest banks, Credit Suisse and UBS, maintain a core Tier 1 capital ratio of at least 12 percent, according to Swiss media reports.

Credit Suisse chief executive Brady Dougan said on Sept. 29 that the bank was well prepared for stricter global and domestic capital requirements. He estimated the bank's current riskweighted assets under the new Basel III rules to be around 400 billion Swiss francs, "if applied to current positions and before any mitigating actions." RWAs at the end of the first half totalled 233 billion Swiss francs.

UBS said on Sept. 30 that, based on Basel III standards, its riskweighted assets as of June 30 would be around 400 billion Swiss francs, compared to 205 billion Swiss francs under Basel II. The bank said that mitigating steps would allow it to significantly reduce RWAs. It also stated that it expects to satisfy the required core capital ratios through retained earnings, but that it would not be able to pay dividends "for some time to come."

The Basel Committee on Banking Supervision said on Sept. 12 that banks would in future have to hold common equity capital equivalent to at least 7 percent of their riskweighted assets, including a 2.5 percent "capital conservation buffer". Banks must meet the new standards by January 2019.

The Basel Committee wants national regulators to introduce a countercyclical capital buffer which will vary inline with the economic cycle. This could add a further 2.5 percent to capital requirements.

Regulators are also studying whether to impose an extra capital charge on systemically important financial institutions, though it is not clear what form these will take.

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