BERN, SWITZERLAND – Switzerland will implement its tough new bank capitalization rules in two weeks, starting 1 March, the Federal Council said Wednesday. The measures calling for more risk capital were approved nearly a year ago by the council, then debated in parliament, which approved the amendment to the Banking Law in September.
The new law gives the country’s two largest banks, Credit Suisse and UBS, considered Switzerland’s “too big to fail” or systemically important banks, six years to gradually meet the new requirements.
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must now increase their capital bases substantially above the amount required by Basel III global requirements, but a statement issued by the Federal Council notes that “systemically important banks will have to meet more stringent capital, liquidity and organizational requirements in the future.” The organizational requirement demands that these banks must organize themselves in such a way that “they do not jeopardize the functioning of the national economy in the event of looming insolvency.”
Changes to the federal stamp duties law
The council also adopted ordinance amendments that implement tax measures, with changes to the Federal Act on Stamp Duties, specifically, the Ordinance on Stamp Duties and the Ordinance on Withholding Tax. “Their purpose is to develop a Swiss capital market that works well and promote contingent convertible bonds (CoCos) in Switzerland. These bonds play a key role in the emergency plans of systemically important banks. It was resolved to abolish the issue tax on debt capital and to exempt the conversion of CoCos into equity from the issue tax.”
Beyond Basel III
Basel III rules were established by the Basel Committee on Banking Supervision and have been the subject of heated international debate in recent months.
The Swiss National Bank threw its support behind the tough new Swiss law, which was written after the government’s 2008 bailout of UBS during the global financial crisis.
Philipp Hildebrand, who in early January 2012 resigned as head of the central bank, was both praised and attacked for his strong stand on the Swiss law.
Banks have argued that it will make them less competitive in the international market, while the Swiss Bankers Association said in March, during consultations, that it goes in the right direction, but goes too far.
Switzerland has been leading the way in bank reforms, calling for larger capital bases, in part because the banking sector is a far larger part of the economy than in many countries. The new law requires the too big to fail banks to hold 10 percent capital, or 3 percent more than the Basel rules.
ZURICH, SWITZERLAND – Switzerland’s largest bank, UBS, said Thursday 17 November that it will strip down its investment banking business and reduce its risks to concentrate on global wealth management and its private banking business in Switzerland. The restructuring was detailed at an investors conference in New York, with new chief executive Sergio Ermotti giving his first major address.
The bank now manages CHF1.4 trillion in invested assets under its wealth management businesses.
Ermotti was confirmed in his post two days ago after two months in the job as the interim CEO.
The bank will cut more than 300 jobs in addition to the 1,500-plus it announced in August, in the next four years. These will be mainly through investment banking attrition. The investment banking business will be reduced by nearly half, with the current CHF300 billion in risk-weighted assets cut by CHF145b.
The group’s capital is expected to rise as a result, to about 13 percent as a result, above the requirements of the stringent new Basel III rules.
The Financial Times points out that the bank’s new strategy parallels to some extent that of other international banks and in particular Credit Suisse, but “the two Swiss groups differ from their big international rivals in their emphasis on private banking as the central and growing part of their business.”
The bank says it plans to pay a dividend for 2011.
Jamie Dimon, JP Morgan's chief portrait by Hocried on Flickr
LONDON – “The United States should consider pulling out of the Basel group of global regulators,” said Jamie Dimon, chief executive of JP Morgan Chase, an American multinational banking corporation of securities, investments and retail, in an interview with the Financial Times.
Although Dimon says he is supportive of “forcing banks to have more capital” he argues that moves to impose an additional charge on the largest global banks go too far, particularly for US lenders and called it “anti-American”.
“I’m very close to thinking the US shouldn’t be in Basel anymore. I would not have agreed to rules that are blatantly anti-American,” he said in the interview.
In 2010 the Swiss-based Basel Committee on Banking Supervision also known as Basel III rules, set bank capital requirements, the ratio of highest-quality assets that banks hold against future losses. The Committee also established reserves of 7 percent in common equity and 10.5 percent in total capital.
Dimon said there was a threat that Asian banks in particular could overtake the US market because of the combination of US domestic and global rules.
According to the FT, Dimon also criticised global liquidity rules arguing that regulations that viewed covered bonds – a European market feature – as highly liquid but discounted government-backed mortgage-backed securities in the US, were unfair.
GENEVA, SWITZERLAND – Europe’s largest retail bank, HSBC in the UK, announced job cuts 1 August that will reached 30,000 by the end of 2013, joining Switzerland’s UBS and Credit Suisse, as well as other large banks that have announced major staffing cuts in the past two weeks as financial markets fail to bounce back as expected from the 2008-09 global economic crisis. Credit Suisse expects to cut 2,000 jobs and UBS has not yet confirmed the number it will eliminate.
The HSBC job cuts were announced along with financial results that show a 36 percent increase in profits to $9.22 billion from $6.76 billion a year earlier. The bank is preparing to meet higher capital requirements under new Basel III world bank regulations.
Business Week reports that HSBC’s proportion of profits from Asian business rose to 76 percent, up nearly 10 percent compared to a year ago, while the share of its expenses based in Asia were just over 46 percent. Job cuts will occur in its offices worldwide, but the bank is likely to be hiring in Asia.
New rules from Basel for banks worldwide
BASEL, SWITZERLAND – The word Basel means one thing to bankers this week: new capital requirements.
New regulations will mean that the world’s largest banks have to raise additional capital and Tuesday’s paper is designed in part to give investors guidelines for “calculating extra funds that the lenders must raise”, reports Bloomberg, which notes that “the Financial Stability Board also published separate plans to ensure the orderly winding down of failed banks and shield taxpayers from bailing them out”.
The Financial Stability Board and the Basel Committee on Banking, both of which are part of the Bank for International Settlements (BIS) unveiled details 19 July of the additional capital requirements that could apply to 28 banks “globally systematically important banks” that have been identified, in a document put out for consultation until early August.
The new formula for determining which banks are at what level of risk was promptly questioned by some of the world’s leading banks, which argue that the tougher capital requirements would endanger economic recovery by restricting their lending. Switzerland plans to implement even tougher standards and Sweden says it wants to do the same.
Bankers, however, say even the Basel III stringent requirements will push up the cost of lending.
ZURICH, SWITZERLAND – The Wall Street Journal is creating a stir in the international banking world with its report Thursday 26 May that Switzerland’s largest bank, UBS, plans to move its investment bank out of Switzerland, perhaps to London, Hong Kong or Singapore. The move would in theory allow it to escape tough new capital requirements for Swiss banks that were approved 19 May by Swiss parliamentary commissions, with a final parliamentary debate scheduled this summer. The new regulations, if passed, could start to go into effect in 2012.
Banks worldwide are struggling to prepare for tougher international standards under the Basel III agreement, but Switzerland has taken its capital requirements a step further, and UBS has expressed concern in the past about the timeframe for the requirements, suggesting a corporate reorganization might be the answer. Its comments have sparked much speculation that at least parts of the bank might be based elsewhere, but the implications for regulating the UBS group if part of it leaves Switzerland remain fuzzy.
Reuters reports that UBS and Finma, the Swiss bank regulatory body, are offering no comment on the WSJ article, but it notes that a UBS spokesperson called it “speculation”.
The investment bank is the arm of UBS that required a CHF39 billion bailout by the Swiss government at the end of 2008 and in early 2009.
The
BERN, SWITZERLAND – The finance commission of the Swiss parliament’s lower house has given its approval to new rules that would require Switzerland’s two largest banks, UBS and Credit Suisse, to increase their capital bases substantially above the amount required by Basel III global requirements.
Basel III rules were established by the Basel Committee on Banking Supervision and have been the subject of heated international debate in recent months.
The change in Swiss banking law, proposed to parliament by the governing Federal Council (cabinet), went through an upper house commission Monday.
It will now be debated in both houses this summer and, if approved, could be implemented starting in 2012, with a six-year period to gradually implement it.
The Swiss National Bank has thrown its support behind the tough new Swiss law, which was written after the government’s 2008 bailout of UBS during the global financial crisis.
Bern, Switzerland (GenevaLunch) – Swiss banks will have tougher capital requirements for trading, known as the Capital Adeqacy Ordinance, starting 1 January 2011, a year ahead of the rest of the world, the Swiss Federal Council (cabinet) announced Wednesday 10 November. New capital requirements have been drawn up by the Basel Committee of central bankers, known as Basel III, but the committee delayed the implementation deadline under pressure from countries. US Treasury Secretary Timothy Gleisner and the European Commission’s internal market commissioner Michel Barnier agreed in October 2010 to a December 2011 deadline for the new trading book rules.
Switzerland has already taken a number of protective steps in the wake of the December 2008 bailout of UBS, the country’s largest bank: higher overall capital requirements and tougher rules on liquidity were adopted for the country’s big banks in October 2010. New rules also created restrictions on bankers’ pay and a cap on the leverage ratio.
The Federal Council noted in its press release on the decision that “the financial crisis made it quite clear that the risks of loss attached to trading activity and securitization were underpinned by insufficient capital levels.
Bern, Switzerland (GenevaLunch) - Switzerland’s two biggest banks, UBS AG and Credit Suisse Group, need to increase their capital reserves beyond international standards, said on 4 October, a committee of public-private experts appointed by the Swiss Federal Council to address the issue of “too big to fail.”
The Committee of Experts believes that both banks are indeed “too big to fail,” but that measures should be put in motion to prevent any possible collapse (not only of the banks but of the Swiss economy).
The new proposal, backed by the Swiss National Bank, SNB, and the country’s financial regulator Finma; goes beyond the Basel III rules agreed to last month by the 27 member countries of the Basel Committee on Banking Supervision.
The Basel III rules establish reserves of 7 percent in common equity and 10.5 percent in total capital, while the new proposal require much higher reserves by 2019; 10 percent and 19 percent respectively.
The committee also proposed specific oversight measures in core areas including liquidity, risk diversification and organisation.
Credit Suisse, Zurich
Basel and Zurich, Switzerland (GenevaLunch) – The financial world heaved a collective sigh of relief at the agreement announced Sunday 12 September by the 27 countries that are members of the Basel Committee on Banking Supervision. For months, the financial press has been speculating about the final deal, called Basel III, to set bank capital requirements, the ratio of highest-quality assets that banks hold against future losses.
Now there is industry fear that national regulators will go further than the Basel III requirements, with evidence this is already happening in some countries, led by Switzerland, calling for even more stringent capital requirements.
Basel III in the end was less demanding than some feared, with an agreement to triple the ratio to an effective 7 percent from today’s 2 percent.
