Swiss Finish Sets New Standard for Global Bank Regulation

October 14th, 2010
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Contributed by: The Global Intelligence Report
INCIDENT: The traditional Swiss finishing school taught young women etiquette and social graces, but international bank regulators are talking about something much tougher when they refer to a "Swiss finish" for global banks.
Just how tough became clear last week, 4 October, when a Swiss commission proposed that its two giant banks, UBS and Credit Suisse, be subjected to capital requirements of up to 19%, nearly three times as tough as the 7% capital-to-assets ratio recently suggested by the Basel Banking Committee as a minimum global standard.

SIGNIFICANCE: The ambitious Swiss plan, designed to solve the "too big to fail" problem, will set the standard for megabank regulation as Group of 20 heads prepare for their summit in November. It almost certainly means that other big global banks such as JP Morgan Chase and Deutsche Bank will face capital surcharges from their national regulators.

Swiss National Bank President Philipp Hildebrand left no doubt in an op-ed last week that the Financial Stability Board, mandated by the G-20 to ready proposals on financial regulation, would push for the higher standards for big banks.

"Two years after the demise of Lehman Brothers, the 'too big to fail' problem remains unresolved," Hildebrand wrote in the Financial Times. "The Financial Stability Board (FSB) and its members are committed to proposing measures to the Group of 20 leaders to address the problem."

ANALYSIS: The FSB, as well as the Basel Committee itself, are international groupings loosely affiliated with the Bank for International Settlements in Basel, Switzerland. The FSB gained new legitimacy when the first G-20 summit in 2008 expanded its representation and called on it to make regulatory proposals for the G-20 leaders.

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