LUCERNE: Switzerland’s big banks are more “weatherproof” now than they were ten years ago, but must do more to prevent any failures dragging down the financial system, Swiss National Bank Vice Chairman Fritz Zurbruegg said on Thursday.
Regulations like stricter capital requirements and bail-in instruments, where shareholders bear the costs of losses rather than taxpayers, are effective ways to tackle the problems of banks which are deemed too big to fail, he said.
In Switzerland five banks, publicly listed UBS and Credit Suisse as well as PostFinance, Raiffeisen Group and Zuercher Kantonalbank, have been designated by the SNB as systemically important.
“We are convinced the Swiss big banks and the Swiss banking system are much more that resilient today than they were ten years ago,” Zurbruegg told an audience in Lucerne, according to prepared remarks.
“Nevertheless the finish line has not yet been reached,” he said, citing more progress needed in improving banks leverage ratios.
With regards to the higher capital requirements, “the benefits far exceed the costs involved,” Zurbruegg said.
Economic costs like higher borrowing rates, reduced lending and weaker growth were minor he said, particularly if the capital requirements are increased gradually over time.
Banks still needed to do more on measures in the event of hitting financial difficulties, he said, so they can wind down without endangering the whole financial system.
Switzerland’s systemically important banks must have their emergency plans in place by the end of 2019.
The two big banks – UBS and Credit Suisse – have met some of the resolution requirements, but their efforts remain incomplete with regard to the leverage ratio, Zurbruegg said.
Further progress is needed on measures to ensure how a bank can wind down its business safely without endangering the financial system, he said.
Ultimately, the state should no longer have to use government funds to bail out a bank, he said, like when the Swiss government pumped 6 billion francs into UBS in 2008.