FRANKFURT (MNI) – Credit Suisse and UBS should boost their capital
in common equity to 10% by 2019, a stiffer requirement than the one
contained in the Basel III accord announced last month, an expert panel
appointed by the Swiss government proposed Monday.

Tougher capital standards than foreseen in the new Basel III
regulation are aimed at addressing the too-big-to-fail problem that has
been a particular concern for Switzerland with its two outsized banking
giants. International Basel III rules will require banks to hold 7% of
capital in common equity.

Under the new proposal for Swiss banks, systemically relevant Swiss
institutions would have to boost their total capital to 19% of their
assets, weighted according to risk. This compares with 10.5% required
under Basel III.

For 9% of the risk-weighted assets, the two large banks could issue
contingent convertible bonds. These bonds would be automatically
converted into common equity when a bank’s common equity ratio dropped
below a predefined level, the panel suggested.

Swiss National Bank Chairman Philipp Hildebrand welcomed the new
recommendations, saying “they will significantly mitigate the ‘too big
to fail’ problem in Switzerland and thus reduce the risk for the Swiss
economy.” The head of the SNB noted that the panel’s proposals “build on
the Basel III regulatory minimum standards and are in line with the
recommendations of the Financial Stability Board.”

The SNB, along with the Swiss supervisory authority FINMA, called
for Swiss implementation of the proposals. They were both represented on
the expert panel, along with bank executives and other industry
representatives.

As previously suggested by the SNB, new rules will also address
organizational structures of big banks.

“It is the responsibility of the systemically important bank
concerned to organize itself in such a way that maintenance of
systemically important functions would be guaranteed in the event of a
crisis,” the report said.

Should Credit Suisse or UBS fail to “demonstrate its ability to
maintain systemically important functions, the supervisory authority
should order the necessary organizational measures.”

If the capital ratio of one or both of the banks falls below a
certain level, an emergency plan should be triggered to transfer
systemically important functions to a new legal entity, the report said.

At the same time, the convertible capital that the bank has to hold
as part of the progressive component is converted into common equity.
“This ensures that the emergency plan is carried out with an adequate
capital base,” the report said.

–Frankfurt newsroom, +49-69-720-142; jtreeck@marketnews.com

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