Will these two firms have to end their universal banking model ?
Bloomberg News reports that Swiss Finance Minister Eveline Widmer-Schlumpf said banks including UBS and Credit Suisse Group may have to pull out of investment banking as she called for their leverage ratios to be raised.
'Banks would have to consider whether to carry on with investment banking or focus even more on asset management', Widmer-Schlumpf was quoted as saying in an interview with Schweiz am Sonntag. Banks 'must be organized in such a way that the state isn’t ultimately held liable'.
The focus on leverage is the latest effort by the government and financial watchdogs to prevent a repeat of taxpayer-funded rescues of systemically important banks. UBS was bailed out in 2008 after booking more than $57bn in writedowns and losses in the U.S. sub-prime lending crisis. Regulators say the leverage ratio, now 4.5%, provides a safeguard against risk-based valuation rules that allow banks to weight assets depending on how they judge their safety.
'We must consider whether the capital-adequacy base shouldn’t be strengthened further', Widmer-Schlumpf was quoted as saying by the newspaper. 'Currently 6% to 10% are being discussed' as a leverage ratio, she said, adding the present level is 'too low''.
In the meantime, Reuters reports that shares in Swiss banks UBS and Credit Suisse were down almost 3% in early trading on Monday after the media reports that Swiss politicians were considering tightening capital requirements for Swiss banks.