Domestic banks reject EU finance fusion

Raiffeisen is part of a consortium of banks that lobby for domestic financial service providers swissinfo.ch

A consortium of domestically-focused banks has warned against a financial services agreement between Switzerland and the European Union, as advocated by the recent Brunetti Report into the Swiss financial centre.

The consortium – made up of cantonal banks, the Raiffeisen  group, Migros Bank and smaller regional banks – said that while a fusion of Swiss and EU banking laws and regulations might favour larger international institutions (most notably UBS and Credit Suisse), it could pose problems for banks that concentrate on domestic deposits and loans.

The Brunetti committee was commissioned by the government in September 2013 to provide advice on a range of challenges facing the Swiss financial centre. Chaired by University of Bern economist Aymo Brunetti, the commission released its non-binding proposals last month.

Among other topics, it looked at changing EU financial regulations that threaten to squeeze out Swiss banks from the lucrative market. The report highlighted the problems of trying to reposition Swiss regulations to match EU amendments and suggested that the government start talks on a possible financial services agreement with the EU.

But the domestic Swiss banking consortium on Thursday said it would be forced to bear the costs of such a regulatory upheaval without benefiting from such a move.

The Swiss Bankers Association (SBA), however, welcomed the proposal, saying that it would reverse the current trend of isolating Switzerland from the EU market.

“For the banks, cross-border access to important markets is absolutely central and a priority for the preservation of value creation and jobs in Switzerland,” the SBA said in a statement last month. “Long term, only an institutional agreement with the EU offers the necessary legal certainty for financial services providers in Switzerland. It is therefore positive that Switzerland will analyse the feasibility of a financial services agreement (FSA) with the EU.”

Leverage ratios

The difference of opinion only highlights a growing split between internationally-focused banks and those that concentrate on the domestic market. This led in part to the creation of the domestic banks consortium last year.

Another key proposal from the Brunetti report that raised eyebrows in Switzerland was the recommendation to increase leverage ratio requirements for banks.

Affecting mainly ‘too-big-to-fail’ UBS and Credit Suisse, leverage ratios force banks to set aside funds to cover the risk of trades backfiring.

Currently, the big international banks have to cover a minimum of 3.12% of their assets with a capital buffer. The Brunetti Report did not specifically give a new threshold leverage ratio figure, but pointed out that United States banks are currently obliged to hold back 5 to 6% of capital to cover trades.