Swiss Leverage, Hill on Markets Union, SEC’s Osnato: Compliance
(Bloomberg) — UBS Group AG urged Swiss authorities to consider the “potential negative consequences” for the country’s financial industry after the government announced plans Wednesday to tighten capital requirements.
UBS and Credit Suisse Group AG are among lenders that would be subject to the stricter rules, designed to shield the economy from a future financial crisis. The government said it will consult with them as it drafts new legislation for banks deemed a danger to the system if they collapse.
Referring to two measures of financial strength, the government in Bern said the rules should be among the “world’s highest requirements with regard to both risk-weighted capital and the unweighted leverage ratio.” It didn’t recommend precise ratios in its e-mailed statement.
Switzerland introduced the world’s strictest capital requirements in 2011 after the government came to UBS’s rescue during the 2008 financial crisis. Since then, other countries led by the U.S. and the U.K. have strengthened their rules to surpass Swiss measures.
Switzerland’s banking system is one of the largest in the world. UBS and Credit Suisse alone have combined assets of about three times the country’s gross domestic product.
UBS said that while it “broadly” agrees with the key findings and recommendations of the report, “a proper evaluation and disclosure of the potential negative consequences for the financial center and the broader economy is necessary.”
Credit Suisse said the amendments need to be aligned with international developments “in terms of both content and timing,” and the necessary transition periods granted. Both banks said the new rules should be in line with international standards.
Interviews/Commentary
SEC Scrutinizing Bank Efforts to Comply With Capital Regulations
The U.S. Securities and Exchange Commission is scrutinizing efforts by banks to appear safer to regulators and shareholders.
The agency is looking for improper behavior related to how banks value complicated assets and to transactions they use to shift risks to other entities, said Michael Osnato, head of the complex financial instruments group in the SEC’s enforcement division.
In the wake of a financial crisis that forced governments worldwide to bail out banks, global regulators are increasing the amount of capital lenders must hold in relation to their assets, more than doubling the requirements under some measures. As publicly traded banks seek to conform to the new rules, their progress has become a common topic in disclosures to investors and presentations by executives.
While banks are allowed to engage in complicated transactions to help them comply — such as using derivatives including customized credit-default swaps that shift some of the risks of their assets to investors — not all types of activity can count. Banking regulators make the ultimate determinations, often after deals get struck and on a case-by-case basis.
“We’re paying attention and looking for fact patterns that are suggestive of something short of a real transfer of risk,” Osnato said in a telephone interview. “If you’re going to look for this, you’re more apt to see it with some of the big overseas banks that may not have the same level of pre-trade interaction with their primary bank regulator.”
His comments came during an interview in which he also discussed potentially inappropriate practices in the post-crisis trading of mortgage bonds and other complex securities.
Hill Says He’s Not Seeking U.S. Capital Markets Clone
Jonathan Hill, European Commissioner for financial services, talked about plans for a capital markets union for the region.
He spoke with Bloomberg Television’s Hans Nichols in London.
For the video, click here.
–With assistance from Jeffrey Vögeli and Elena Logutenkova in Zurich and Jody Shenn in New York.
To contact the reporter on this story: Carla Main in New Jersey at cmain2@bloomberg.net To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net David Glovin, Andrew Dunn
