Swiss banks could be forced to raise their minimum leverage ratios to as much as 10 percent, reported the Wall Street Journal on Sunday, in a move aimed at improving industry stability - yet could see banks have to cut down on their service offerings.

According to WSJ, Swiss politicians have been working on tighter regulations for the financial industry, with the proposed requirements set to face a vote in Parliament next year.

The left-wing Social Democrats, have a minimum leverage ratios of at least 10 percent, or 10 Swiss francs in capital for every 100 francs they hold in assets; whilst the right-wing Swiss People's Party has proposed a ratio of 6 percent.

Higher leverage ratios are meant to ensure that in the event of a crisis, banks can be recapitalised without causing panic or needing taxpayer cash. Credit Suisse and UBS, the two largest banks in the nation, recently announced that their ratios had reached 3.5 percent and 3.2 percent respectively.

Going by their present size, raising the leverage ratio to 6 percent that Credit Suisse and UBS would have to somehow find 33 billion francs ($30 billion) and 20 billion Swiss francs in additional capital. At 10 percent leverage, those figures would rise to 81 billion francs and 62 billion francs - a "downright unthinkable" sum, according to Swiss newspaper Schweiz am Sonntag.

Consequently, Swiss Finance Minister Eveline Widmer-Schlumpf said that the banks may have to rethink their business models.

The change "would automatically mean that the banks need to consider whether they retained investment banking or placed more emphasis on asset management," said Widmer-Schlumpf, as cited by Reuters.

"I am still of the opinion that banks should determine their own business. But they must be organised so that the state does not end up being liable."

Stefan Hostettler, of the Social Democrats, added that is party was seeking to take the country's big banks back to a simpler, less risky era - when foreign investment banking had yet to harm Swiss banking's reputation as a pillar of stability.

UBS and Credit Suisse, he said, "should really have an interest in going back to a more traditional approach."
The proposed ratios are two to three times higher than the requirements set out by the global Basel III accord, which is due to expire in 2019. The European Union also mandates just a minimum 3 percent leverage ratio by 2018, while U.S. financial regulators recently called for a leverage ratio requirement of up to 6 percent for the country's big banks, also by 2018.

Economy Watch