Group seeks to curb risks posed by banks

Big Swiss banks that threaten to destroy the country’s economy if they fail should not be cut down to size, a government-appointed commission has found.

This content was published on April 22, 2010 - 15:06

The report published on Thursday establishes broad guidelines to limit risks that banks that are “too big to fail” could pose for the overall Swiss economy.

The report has yet to be finalised but the suggestions include regulating a bank’s equity, liquidity, risk allocation and organisational structure. The final report is due out in the autumn.

The financial sector is the only sector that could pull the entire economy into ruins, it said.

The commission of experts said regulations governing equity would have to be tightened according to the significance of the bank’s role in the economy. The group said it would still have to “look closely” at just how that would work.

In times of crisis, banks must also be able to respond to increased demands on liquidity without an external contribution for a minimum amount of time. The ceiling for claims against a single counterparty should be lowered to reduce risk, the report said.

Lastly, functions deemed vital for the Swiss economy should be outsourced permanently. Doing so would keep the state from being forced to come to the rescue of the entire group should things turn dire.

The report also shot down the idea of sharing the burden among several states in the event of a bailout and abandoned studying explicit state guarantees for banks. Experts said such steps would have no effect on the “too big to fail” problem. and agencies

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