SNB Says Swiss Banks Need Tighter Rules Than Others

By Klaus Wille

Nov. 19 (Bloomberg) -- Swiss National Bank Chairman- designate Philipp Hildebrand said the country may need tighter financial rules than the rest of the world to tackle a domestic industry dominated by UBS AG and Credit Suisse Group AG.

“Given the particular situation in Switzerland, higher- than-average regulatory standards are warranted,” he said in a speech in Geneva yesterday. The “exceptional” size of the two biggest Swiss banks means “prudent decision-making” is needed on the regulatory framework.

Hildebrand, who takes over from Jean-Pierre Roth in January, helped start a push earlier this year for officials to debate whether some banks are “too big to fail” and should be broken up to prevent a repeat of the crisis worsened by Lehman Brothers Holdings Inc.’s collapse. The Swiss banking industry is 8.2 times the country’s gross domestic product, compared with 4.3 times in the U.K. and 0.9 times in the U.S., SNB statistics show.

Hildebrand, who is currently SNB Vice Chairman, said that while regulatory reform should be “internationally coordinated,” a global agreed level of regulation might not be sufficient for Switzerland.

“Not all countries are confronted with the same urgency for reform as we are,” he said.

Shares in the country’s two biggest banks were little changed. UBS stock was at 16.86 Swiss francs at 9:36 a.m. in Zurich and Credit Suisse slipped 0.1 percent to 55.45 francs.

‘Most Important’

Hildebrand said in June that there can be “no more taboos” when rewriting financial rules and indicated that officials should be prepared to break up some banks if necessary. He said yesterday that banks’ size is the “most important question” for Switzerland.

The debate on how to tackle banks deemed “too big to fail” gathered momentum last month when Bank of England Governor Mervyn King said that such banks could be split to separate riskier activities from more stable businesses such as taking deposits.

Hildebrand demanded contingency plans for some institutions in case of financial distress, echoing similar calls from the leaders of the Group of 20 nations after a summit in September.

“At the forefront of our efforts to mitigate the ‘too big to fail’ problem must be an internationally agreed and orderly process to allow for the wind down of large, systemically important institutions in the event of a severe crisis,” Hildebrand said.

The SNB governing board member reiterated that the amount and quality of banks’ capital needs to be increased and that higher liquidity ratios are needed. He also urged policy makers today to strengthen their efforts.

“What has been missing is a bold and international political commitment to put in place a framework for the orderly resolution of large cross-border financial institutions,” he said.

To contact the reporter on this story: Klaus Wille in Zurich at kwille@bloomberg.net.