SNB banker supports leverage “safety valve”

The vice-chairman of Switzerland's central bank has said he supports limiting how much debt banks can take on, calling it a "safety valve".

In a speech at the London School of Economics on Monday evening, Philipp Hildebrand of the Swiss National Bank (SNB) said that stricter leverage ratios should be in place for the country’s financial institutions.

Leverage ratio refers to the amount of money a bank borrows to supplement existing invested funds. Leverage increases returns on positive investments but amplifies losses.

Switzerland has introduced a leverage ratio limit on UBS and Credit Suisse, the country’s two largest banks.

Hildebrand said that while higher leverage ratios alone would not have prevented the financial crisis, they could have mitigated it.

“Looking at risk-based capital measures, the two large Swiss banks were among the best-capitalised large international banks in the world,” he said.

“Looking at simple leverage, however, these institutions were among the worst-capitalised banks.”