A Swiss government panel has laid down the basic proposals that would require the banking giants, UBS and Credit Suisse, to hold more capital in reserves. The capital will be significantly higher than what is generally held by their international competitors.
The proposals require them to maintain low-risk reserves equal to 10 percent of their total assets by the end of 2018. The approval by the Swiss parliament is required before the proposals could be implemented.
The regulatory proposal is aimed at providing extra insurance against a calamitous failure of these banks. The concerns have been brought forward by the Swiss National Bank and others that think that a crisis situation at Credit Suisse or UBS could lead the country to a breakdown. Their concerns hold water as the two banks’ combined balance sheets are five times higher than the total size of the Swiss economy.
The panel was appointed by the Swiss Federal Council and had representation of the central bank as well as industry stakeholders and the two banking giants.
Credit Suisse and UBS have agreed to the proposals and said that they will be able to meet the requirements. The Basel Committee on Bank Supervision proposed lower reserve requirements for the global banks at a meeting last month, at 7 percent of the total assets.
Credit Suisse and UBS would also be required to hold another
9 percent in reserves, for a total of 19 percent. They will have the option to
hold the additional 9 percent in the form of contingent convertible bonds.
