Bloomberg News

SNB’s Danthine Says Too-Big-to-Fail Issue Remains Unsolved

October 19, 2012

Swiss central bank Vice Chairman Jean-Pierre Danthine said the problem about too-big-to-fail banks can’t be considered solved as long as they don’t meet the 2019 capital requirements.

The Swiss National Bank may have bail out UBS AG (UBSN) or Credit Suisse Group AG (CSGN), the country’s two largest banks, if they run into difficulties as the European debt crisis escalates, Danthine told Zurich-based Finanz & Wirtschaft in an interview published on the newspaper’s website today. The Zurich-based SNB confirmed the remarks.

“The world economy and the financial system are still in a very fragile state,” he said. “At the moment, the too-big-to- fail problem is anything but solved.”

Swiss regulators require UBS and Credit Suisse to have capital equal to about 19 percent of risk-weighted assets by 2019 as part of the so-called too-big-to-fail rules. The government in 2008 saved UBS from near-failure by injecting 6 billion francs ($6.5 billion) to help the bank spin off its toxic assets into an SNB fund.

The SNB is “very pleased” that Credit Suisse announced measures in July to boost its capital, Danthine said.

“We’re encouraging both big banks to continue with capital build-up,” he said. “Until we have reached the target, I cannot be satisfied.”

Banks globally are still “under-capitalized,” Danthine said, adding that “the sooner they raise the capital, the faster they can fully perform their economic function again.” Still, the SNB doesn’t expect a euro breakup, he said.

Danthine also said that the Swiss franc “is still extraordinarily high” against the euro. “Experience shows that such an overvaluation corrects itself with time,” he said.

The SNB continues to be “uneasy” about Swiss real estate prices, Danthine was cited as saying. “It is clear that the market is susceptible for a correction,” he said.

To contact the reporters on this story: Elena Logutenkova in Zurich at elogutenkova@bloomberg.net; Zoe Schneeweiss in Zurich at zschneeweiss@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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