Swiss banks UBS and Credit Suisse have been told by the central bank that they still need to draft credible plans for potential insolvency as part of the country's efforts to prepare for a banking crisis. After the financial crisis in which UBS suffered billions of dollars in losses and took a government bailout, Switzerland introduced new regulations designed to protect the economy from a possible banking collapse.
The Swiss National Bank (SNB), which helps to oversee the stability of the country's financial system, said on Thursday that the two biggest banks are on track to meet the new capital requirements but more work is needed. "As a means of resolving the 'too big to fail' issue in Switzerland, it is essential that further progress be made in drawing up robust resolution plans," the SNB wrote in its annual financial stability report.
UBS and Credit Suisse, the combined balance sheets of which are more than two-and-a-half times the size of the Switzerland's economy, have already set up Swiss subsidiaries that house functions crucial to the country.
However, they still need to demonstrate how they would be able to maintain these systemically important services when faced with impending insolvency, the SNB said. They will also need to bolster capital set aside in case a bank must be wound down following insolvency. Both banks are on track to meet updated too-big-to-fail (TBTF) capital requirements by the end of 2019, the SNB said, though it cautioned that they still need to improve their total loss-absorbing capacity for leverage ratios.
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