Swiss Bank Regulator to Impose Assets-to-Capital Multiple Cap

Bloomberg has reported:

Switzerland’s Federal Banking Commission will go ahead with a plan to cap the amount of assets that UBS AG and Credit Suisse Group AG can accumulate in relation to their capital, Chairman Eugen Haltiner said.

“We are going ahead with the leverage ratio,” Haltiner said in an interview at a conference in Zurich today. The commission has received the banks’ replies to its proposal and is now discussing details, such as an exact definition of the ratio, he added. “We plan to introduce the new rules by the end of the year at the latest.”

Haltiner declined to say how high the new capital requirement may be. The U.K. Financial Services Authority may also be considering tighter capital requirements for banks, he said.

“We had a good dialogue with the FSA and their first reaction was that capital wasn’t the first priority because the problems of U.K. banks were on the liquidity side,” he said. “In the meantime, the FSA is also reconsidering capital requirements.”

Risk-weighted capital rules “made a mess in the end” because they didn’t require capital to be held against assets such as subprime mortgages, relying purely on bonds’ ratings, Haltiner said. UBS, which took more than $43 billion of subprime- related writedowns, had to raise almost $28 billion of capital from shareholders and investors in Singapore and the Middle East this year.

This is important. As far as I am aware, only Canada and the US currently impose an Assets-to-Capital Multiple Cap (in the US, it’s called the leverage ratio), but it now appears as if this belt-and-suspenders approach to bank regulation is catching on … at least a little bit.

The post Bank Regulation: The Assets to Capital Multiple includes a chart from the IMF showing just how extreme the leverage of UBS and Credit Suisse became.

This is a good policy move. At present there is no official information on the Swiss regulator’s website.

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