Bloomberg News

Swiss Lawmakers Approve Curbing Risks at UBS, Credit Suisse

September 30, 2011

Sept. 30 (Bloomberg) -- Swiss lawmakers approved proposals to curb risk-taking at UBS AG and Credit Suisse Group AG, the country’s biggest banks.

Swiss policy makers are running ahead of counterparts in the U.S. and Europe to make sure UBS and rival Credit Suisse cut risks and hoard capital to avert the type of banking collapse that hobbled Iceland’s economy. Both chambers of Parliament today approved the legislation after a joint commission yesterday resolved differences on taxing so-called contingent convertible bonds, which will be used as capital buffers.

“This bill was highly overdue,” said Susanne Leutenegger Oberholzer, a lawmaker from the Social Democratic Party. “We must make sure that Switzerland never again sees a near failure like that of UBS.”

Lawmakers in the Swiss capital, Bern, backed proposals to limit risk-taking after UBS said this month it may be unprofitable in the third quarter after a $2.3 billion loss from unauthorized trading at its investment bank. The loss, less than two months after former Chief Executive Officer Oswald Gruebel said Switzerland’s biggest bank had “one of the best” risk- management units in the industry, exposed flaws in its controls.

UBS and Credit Suisse will have to hold capital equal to at least 19 percent of assets, weighted according to risk, by 2019, according to the bill. That’s almost double the percentage proposed by the Basel Committee on Banking Supervision for banks deemed too big to fail.

Swiss Finance Minister Eveline Widmer-Schlumpf said this month that making banks safer will “restore confidence” in Switzerland as a financial center.

Breakup Rejected

A Swiss government-appointed panel last year rejected proposals to break up the two Zurich-based banks or directly limit their size and activities.

The Swiss government’s efforts come amid global attempts to strengthen banks’ balance sheets. The Basel Committee on Banking Supervision in June said systemically important banks must hold as much as 2.5 percentage points as a surcharge. In the U.K., an independent commission this month recommended that banks build fire breaks between their consumer and investment banks.

Switzerland rescued UBS in 2008, injecting 6 billion francs and helping the bank spin off $39 billion of toxic assets into a central bank fund. Credit Suisse declined government assistance.

UBS and Credit Suisse will have to meet higher liquidity requirements, according to the government proposals.

--Editors: Dylan Griffiths, Randall Hackley.

To contact the reporter on this story: Klaus Wille in Zurich at kwille@bloomberg.net

To contact the editor responsible for this story: Matthew Brockett at mbrockett1@bloomberg.net


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