At Least One Country With Big Banks is Not Afraid of Them

Posted: 24 Apr 2011 11:00 PM PDT

This development, which was cited in last week’s Eurointelligence, has not gotten the attention it warrants:

The Swiss government wants to impose capital requirements on their two internationally active big banks UBS and Credit Suisse that by far exceed what European or American regulators intend to ask their banks to do, Frankfurter Allgemeine Zeitung reports. According to a draft law those two institutions should be required to keep 19% of their capital as a cushion of which 10% has to be core tier one capital. Part of those 19% is a surcharge on big banks of 6% which can be covered by contingent capital (cocos). That measure alone will cost both banks €18bn respectively, the paper claims. The government justified its proposal by saying that nowhere else banks had a comparable weight in the economy as in Switzerland where the balance sheets of UBS and Credit Suisse are equivalent to about five times the national GDP.

Note that their recommended capital level is very similar to the one suggested by Anat Admati:
Funny how a country that is arguably very dependent on finance also correctly sees itself at risk. Switzerland, which had to undertake a very costly bailout of UBS, required the bank to bring in independent advisors and prepare a report of what it had done to get in trouble. Most of that report was released to the public. Had every bank in the world that was rescued been required to write similar reports, we’d all be further down the curve and various investigators would have been far more focused and effective.
Now this would seem to put paid the idea that governments need to roll over and play dead when big banks bark. While the heads of some boutiques within firms may be able to bolt, like hedgies and private equity types, anyone too close to the capital market engine is going to be less mobile. You need a credible central bank to back you up (and Japan and China are not about to welcome foreign entrants, thank you very much) and you also need to be close to clients (financial centers have big network effects). You could in theory split the traders off from client facing staff but in practice there is a reason salesmen and traders typically sit in close physical proximity: the information advantages run both ways.
Richard Smith also noted:

The second interviewee has heard some rumours. Well, so have I, and mine say that Zug’s full up with expat hedgies, Geneva’s full up with expat hedgies, and they all come dashing back at the weekend anyway for the home comforts of London. There’s more to attractiveness than your tax rate. Let’s see someone carve a whole new anglophone Canary Wharf, City of London, and Mayfair out of the bare rock somewhere in a European time zone.