This development, which was cited in last week’s Eurointelligence, has not gotten the attention it warrants:
The Swiss government wants to impose capital requirements on their two internationally active big banks UBS and Credit Suisse that by far exceed what European or American regulators intend to ask their banks to do, Frankfurter Allgemeine Zeitung reports. According to a draft law those two institutions should be required to keep 19% of their capital as a cushion of which 10% has to be core tier one capital. Part of those 19% is a surcharge on big banks of 6% which can be covered by contingent capital (cocos). That measure alone will cost both banks €18bn respectively, the paper claims. The government justified its proposal by saying that nowhere else banks had a comparable weight in the economy as in Switzerland where the balance sheets of UBS and Credit Suisse are equivalent to about five times the national GDP.
Note that their recommended capital level is very similar to the one suggested by Anat Admati:
Funny how a country that is arguably very dependent on finance also correctly sees itself at risk. Switzerland, which had to undertake a very costly bailout of UBS, required the bank to bring in independent advisors and prepare a report of what it had done to get in trouble. Most of that report was released to the public. Had every bank in the world that was rescued been required to write similar reports, we’d all be further down the curve and various investigators would have been far more focused and effective.
Now this would seem to put paid the idea that governments need to roll over and play dead when big banks bark. While the heads of some boutiques within firms may be able to bolt, like hedgies and private equity types, anyone too close to the capital market engine is going to be less mobile. You need a credible central bank to back you up (and Japan and China are not about to welcome foreign entrants, thank you very much) and you also need to be close to clients (financial centers have big network effects). You could in theory split the traders off from client facing staff but in practice there is a reason salesmen and traders typically sit in close physical proximity: the information advantages run both ways.
Richard Smith also noted:
The second interviewee has heard some rumours. Well, so have I, and mine say that Zug’s full up with expat hedgies, Geneva’s full up with expat hedgies, and they all come dashing back at the weekend anyway for the home comforts of London. There’s more to attractiveness than your tax rate. Let’s see someone carve a whole new anglophone Canary Wharf, City of London, and Mayfair out of the bare rock somewhere in a European time zone.
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“Switzerland, which had to undertake a very costly bailout of UBS, required the bank to bring in independent advisors and prepare a report of what it had done to get in trouble. Most of that report was released to the public.”
You keep mentioning this alleged UBS report, but I’ve never seen it referenced anywhere else. Nor have I been able to locate any such report, after a not-inconsiderable amount of time searching. And nor, I might add, have you ever quoted from, or mentioned the findings of, the alleged report. If it was so useful, what did it say? Do you even know?
I’m beginning to question whether you have your facts straight.
http://lmgtfy.com/?q=ubs+crisis+report
(took ~1 minute, including snark).
wow. not only were there instantly relevant results, they were from the NYT, Reuters and the UBS website. Where did you search and not find it?
“Switzerland, which had to undertake a very costly bailout of UBS, required the bank to bring in independent advisors and prepare a report of what it had done to get in trouble. Most of that report was released to the public.”
You keep mentioning this alleged UBS report, but I’ve never seen it referenced anywhere else. Nor have I been able to locate any such report, after a not-inconsiderable amount of time searching. And nor, I might add, have you ever quoted from, or mentioned the findings of, the alleged report. If it was so useful, what did it say? Do you even know?
I’m beginning to question whether you have your facts straight.
here’s the report – enjoy:
http://www.ubs.com/1/g/investors/share_information/shareholderreport.html
That’s not the report Yves is referencing. That report was prepared by UBS’s own general counsel, not by “independent advisors,” and that report came before the government bailout. The Swiss government didn’t bail out UBS until October 2008. That report is from April 2008.
http://www.ubs.com/1/e/transparencyreport.html
Hah, I scroll down a bit and find you. Oxfordshire financial Googlers rule.
Thanks – very useful. The collective wisdom of the blogging community is wonderful!
Admittedly, I have never lived in Switzerland myself, but I am always a bit puzzled by the idea that somewhere like Zurich is a less attractive place to live than London. Whenever I visit, I am impressed by Switzerland’s peacefulness and tidiness, and even the community discipline that keeps it that way – it seems to me that we could do with some of that in the UK. Maybe that tells you something about the kind of people that work in finance (either that, or something about me)!
It’s very simple really – Zurich is extremely boring in comparison to London; apart from the neat and tidy aspect, there’s precious little “there” there – whilst London is (one of) the most “there” place(s) on the planet.
Art. Music. Fashion. Literary scene. Sport. Public spectacle. Food. Culture. All the things that make life fun and exciting are to be had in spades in London, whilst there’s maybe an annual fashion coffee morning in Zurich to keep the wife/mistress entertained.
Seen any good Swiss films lately?
Bankers may moan a lot about the UK regulatory menace, but they all understand that there’s a price to be paid for the attractions of London and the satisfaction of their vanity.
Guess I should have been a banker. I’d far rather live in Zurich than London.
When a man is tired of London, he is tired of life; for there is in London all that life can afford – Samuel Johnson
With, of course, the caveat that affording London is sometimes difficult … but then … if we could get all the banksters to move out somewhere else prices might start coming down. Sadly I think this is just a beautiful dream since 19% capital is going to mean the likes of Barclays are never going to move out to Switzerland (like a tennant that refuses to quit).
Maybe, however, if we work at it long enough we *could* get Barclays to move its headquarters to New York so that in the next financial meltdown it’ll be the Fed that’s on hook to make good the losses on whatever the next generation’s poison will be and not the BoE and UK taxpayers.
The Swiss government is not big enough to substantially bailout their banks. I thought we bailed out UBS and their clients. Maybe same for Credit Swiss. Is that incorrect..
The Swiss National Bank has relieved UBS of about 40 billion CHF worth of junk papers and the federal government has forked over a 6 bln CHF temporary loan – the latter of which has since been recovered by the Swiss federation (+some).
The junk papers (called Stabfund) are still simmering somewhere at the SNB. It seems the situation has improved somewhat (says the balance sheet) but you can believe that or not.
UBS also received 5 bln USD from the AIG bailout, I believe.
Switzerland hasn’t done anything yet, it’s just discussing a proposal by the federal council.
There are federal elections in October, so we’ll have to see how much of this is posturing or if anything useful comes of it.
It probably depends on how the elections go, if the parlament moves further to the right, the thing is dead in its current form.
From the experience of Iceland and Ireland one would think that some politicians would conclude that their country would be better off without big banks. So if they want to flee, so much the better.
Since Switzerland is a regional financial center which attracts deposits disproportionate to its population, I’d presume that UBS and Credit Suisse assets are large in relation to Swiss tax revenues and GDP. This poses the same risk that Iceland and Ireland faced, of relatively small government entities trying to regulate and backstop very large banks.
Upping capital requirements is one approach. The other, of course, would be to break up TBTF institutions. But in a world where gargantuan banks are tolerated in most rich countries (hell, subsidized in the benighted U.S.), it’s difficult for a small country such as Switzerland to march in the opposite direction.
Just as it was difficult for the Swiss to maintain precious metal backing for their currency in a profligate fiat world. And so the world’s last government-issued real money succumbed, sometime in the 1980s as I recall. Paper to paper, dust to dust …
Who needs capital or reserve requirements? Simply eliminate all government support for banks and they would quickly learn discipline or go under. In fact, it is debatable that fractional reserve banks could survive at all without government privilege since who would rent a money supply when they might create their own interest-free?
@BeardedFranks:
Aren’t we governed by bankers? Isn’t that the point to the End the Fed idiocy? Which bankers are the ‘good guys’?
Aren’t we governed by bankers? frances snoot
Yep, as predicted by Proverbs:
The rich rules over the poor, and the borrower becomes the lender’s slave. Proverbs 22:7
Isn’t that the point to the End the Fed idiocy? frances snoot
The Fed should be nationalized and abolished. The US Treasury should issue all US government (only legal tender for government debts) money interest-free. The private sector should be free to issue private monies that are only acceptable for private debts.
Which bankers are the ‘good guys’? frances snoot
None and some. The system itself is rotten since it is essentially government enforced counterfeiting. ALL bankers are thus thieves.
Did you mean to say IMF or US Treasury?
The IMF can go jump. I was referring to the US Treasury.
I’m afraid they do jump together, Frankly. They’re like Siamese twins.
The reserve ratios at the moment for and Hong Kong and China is about 20% and 21% respectively. That’s why their banking sector is not in trouble. One can’t make money out of thin air, NO?
One can’t make money out of thin air, NO? J Gibson
One can if one has assets to back it. Government fiat is backed by its taxing authority. Private monies, such as movie tickets, are backed by assets, such as the ability, in this case, to exchange them for movie performances.
“Whenever I visit, I am impressed by Switzerland’s peacefulness and tidiness, and even the community discipline that keeps it that way..”
Switzerland makes cheese: big rounds of it, off of the backs of those toiling lombards intricately winding the common folk within their banking indices.
Suprasovereign banking (aka multilateral banking institutions) can hardly be relegated to national/sovereign contiguous borders. It is the multilateral banking beastie, based in Basel and servicing an exclusive index (sdr), which never sleeps. The same index rules governing agency withing the G20 domicile termed ‘rule of law’.
http://www.uiowa.edu/ifdebook/faq/faq_docs/BIS.shtml