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Swiss Regulator Crafts New Bank Liquidity Rules - UBS, CS Feel Prepared

Knud Noelle

23 April 2010

Switzerland has substantially revised its banking liquidity regime for its domestic banking giants, FINMA, the nation’s financial regulator announced. UBS and Credit Suisse said they were prepared for the changes. 

The new regulations are the result of a co-operation between the regulator and the Swiss National Bank as well as the two Swiss banking giants concerned, Credit Suisse and UBS. The new rules will come into force on 30 June this year.

The Swiss liquidity prescriptions date back to 1988, and have not been revised since. The regulator said the old regime “cannot ensure a level of resistance to crises for big, globally active Swiss banks.”

Essential to the new liquidity regulations is a stringent stress scenario covering a general crisis of the financial markets coupled with a creditors' loss of trust in the bank. The new regulatory regime forces the big banks to cover the outflows estimated in such a scenario over a period of at least 30 days. This will be done in particular by holding an adequate reserve of first-class liquid assets.

The financial crisis has greatly emphasized the importance of liquidity reserves for safeguarding the resilience of big banks, according to FINMA: “A modern liquidity regime is central to the robustness and in turn to the stability of the financial system."

“If a big bank is to master adverse stress situations independent of state aid, its level of liquidity must be considerably higher than specified in the current prescriptions.”

The new regime incorporates international trends in liquidity regulations, in particular those elaborated by the Basel Committee on Banking Supervision.

The two big banks will have to demonstrate to FINMA that they are complying with the new requirements on a monthly basis.

"The tightening of liquidity requirements for big banks is a result of their systemic importance to the Swiss economy," FINMA said.

Credit Suisse told WealthBriefing that it saw itself “excellently positioned” to implement the new rules.

The bank said that it already had a high liquidity at the beginning of the financial crisis and kept standards high. The bank therefore does not expect a great rise in costs related to the new regulations.

UBS too feels prepared for the new requirements. The bank said: “UBS already fulfils the requirements of FINMA's new liquidity regime. The costs of doing so are already reflected in our planning and our results.”