Swiss Government Mulls 5% Leverage Ratio On Biggest Banks

(RTTNews) - The Swiss government is planning to impose five percent leverage ratio for its biggest lenders, mimicking the higher U.S. leverage ratio, Bloomberg reported, quoting people briefed on the deliberations. If the new system is implemented, Swiss banks would have to keep more capital reserves.

The government will also align its calculation of the ratio with the method employed in the U.S. This will lead to fewer types of debt counting toward capital. Ensuring financial strength has become extremely important after the 2008 financial crisis to avoid the possibility of collapse.

The new rule may stipulate that common equity be at least 3.5 percent of assets. The remaining 1.5 percent may come from debt instruments that can be translated into equity, if required.

An expert panel appointed by the Swiss government recommended in December that the country follow the standard set by the U.S., which has implemented some tough capital requirements in the recent past.

Swiss banking giants UBS AG (UBS) and Credit Suisse (CS) reported Basel III leverage ratios of 3.6 percent and 3.7 percent, respectively, at the end of the second quarter, which means they could be over 1 percentage point short of the new target.

The two lenders together have assets of 1.83 trillion francs, about three times the size of the country's gross domestic product. They are said to have sought to win easier terms.

The new rule is being fine-tuned by regulators and needs the approval of the government.