ZURICH (Reuters) - All Swiss banks will have to maintain a leverage ratio of at least 3 percent from next year under new rules for smaller lenders adopted by the government on Wednesday to help safeguard the banking system’s stability.
“A minimum core capital (Tier 1) to total exposure ratio of 3 percent is required of a bank. Like previously, systemically important banks must meet more stringent requirements. The prescribed rate can be as much as 10 percent for them,” the government said after a cabinet meeting.
The regulations are in line with draft proposals unveiled in April by the finance ministry.
Regulators around the world have been working on rules to strengthen banks following the 2007-2009 financial crisis.
The leverage ratio measures banks’ core capital as a percentage of total assets without adjusting them for risk weightings. It helps to ensure banks have enough capital to support their lending.
The government also adopted rules that limit concentrations of risks at banks as of 2019.
“Risk concentrations will be measured only according to core capital (Tier 1), as supplementary capital (Tier 2) will generally not be taken into account. Moreover, banks will be allowed only very restricted use of models for determining their risk concentrations, as modelling errors have a major impact when calculating these risks,” it said.
The two biggest Swiss banks, UBS (UBSG.S) and Credit Suisse (CSGN.S), are on track to meet updated too-big-to-fail rules but more progress is needed in preparing plans for a potential insolvency, the central bank said in June.
Switzerland has already settled on its too-big-to-fail rules, which included a headline requirement for UBS and Credit Suisse to hold core capital worth 5 percent of total assets. At least 3.5 percent of the leverage ratio is to be made up of high-quality common equity tier 1 (CET1) capital.
In a separate step on Wednesday, the cabinet amended the ordinance on liquidity of banks to ease terms of the liquidity coverage ratio from January 2018, especially for smaller financial institutions.
It postponed introducing a net stable funding ratio (NSFR) for banks, which was originally planned for January 2018, given delays elsewhere in implementing the measure. The government will look anew at the measure at the end of 2018, it said.
Reporting by Michael Shields; Editing by Mark Potter