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In Business on September 26, 2010 at 2:54 pm

News

Swiss big bank rules to go further than Basel III: report
Sun Sep 26, 2010 9:34am EDT

ZURICH (Reuters) – Swiss regulators will ask big banks UBS(UBS.N)(UBSN.VX) and Credit Suisse (CSGN.VX) to go one step further than their international competitors in the amounts of core capital they hold, a newspaper reported on Sunday.

A commission of experts on the “too-big-to-fail” issue would hand a report on Thursday to the Swiss Finance Ministry proposing Switzerland’s two largest banks should hold core capital of around 12 percent — 2.5 to 5 percent more than foreign competitors — SonntagsZeitung reported, citing commission sources.

Details of the report could be made public as early as Monday and the Swiss government was expected to discuss the proposals on Friday, the paper said.

Under new, international “Basel III” rules agreed earlier this month, banks will be required to hold top-quality capital — known as “core Tier 1” capital, and consisting of equity or retained earnings — worth at least 4.5 percent of assets and a “capital conservation buffer” of common equity equaling 2.5 percent of assets, bringing the total top-quality capital requirement to 7 percent.

They will also have to build a separate “countercyclical buffer” of between zero and 2.5 percent when the credit markets are booming.

Top officials at Swiss financial regulator FINMA and at the Swiss National Bank backed the Basel III reform package but said the new set of rules did not go far enough in addressing the problem of how to stop a big bank’s failure dragging down the whole country’s economy.

In the past Credit Suisse and UBS were also expected to comply with the “Swiss finish,” a domestic layer of bank capital regulation that went above international standards.

Credit Suisse would need around 15 billion of new capital and UBS 5.5 billion to reach the new 12 percent minimum for core capital, SonntagsZeitung said.

The two banks would consider contingent convertibles — debt that is converted into shares if a specified event occurs — to bolster their core capital if needed, the paper added.

Analysts have said retained earnings should suffice for UBS and Credit Suisse to build core capital that meets additional Swiss requirements of 3 percent above those in Basel III.

(Reporting by Jason Rhodes; Editing by Louise Heavens)

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