The USA, Great Britain and the EU are postponing tightening of capital requirements for banks. However, the Confederation is sticking to its schedule – and once again ends up in the role of model student.
Michael Barr is responsible for banking supervision at the American central bank Fed and announced a few weeks ago a significant relaxation of capital requirements when implementing the “Basel III final” reform.
Imago
Top managers of Swiss banks watched with fascination, consternation and a little envy as the American central bank Fed capitulated to the major US banks on September 10th. That day, Michael Barr saidthe person responsible for banking supervision at the Fed, rejected the planned tightening of capital requirements for financial institutions during an appearance. A watered-down version of the reform is unlikely to come into force until 2026 at the earliest.
For a year, the US banks had waged a violent, rather unusual campaign against the rules known as “Basel III final”. This was aimed directly at the population: “Another bill that Americans can’t afford,” was the slogan in a television commercial that conveyed a simple message: If banks have to hold more equity, loans, mortgage interest and life in general will even more expensive.
The argument failed. The final stage of the international banking reform “Basel III,” which was launched after the 2008 financial crisis, became increasingly unpopular in the United States until the Fed gave in.
Two days after the Fed the Bank of England also announced on September 12thto delay the implementation of “Basel III final” until at least the beginning of 2026. The British were reacting to concerns in the economy that loans for SMEs, infrastructure projects and residential real estate could become more expensive.
Already in July The European Union decided to postpone the complete “Basel III final” implementation. Brussels wants to wait and see how the USA positions itself. Big European banks should have the same level of leverage in international competition as the American ones.
The situation is completely different in Switzerland: In this country, the wind in terms of banking regulation has changed since the demise of Credit Suisse in March 2023. The signs point to things getting tougher.
The Federal Council is not considering postponing the “Basel III final” implementation even by one day. On January 1, 2025, it will definitively and fully bring the new capital adequacy regulation into force. And that is before it becomes clear whether and when Washington, London and Brussels will take this step.
Against this background, bank representatives express the fear that Switzerland could give up the competitiveness of its financial center under the impact of the trauma from the CS crisis. Nobody asks the question anymore: Is this going too far?
Model student again
Andreas Ita, banking expert at the consulting firm Orbit 36, also speaks of a “dangerous development”. The problem is not that Swiss banks have to comply with the “Basel III final” rules a year earlier than their competitors in London, Frankfurt or New York. The financial center does not oppose the reform across the board, which is intended to make the capital base among banks more targeted, more uniform and therefore more comparable.
The problem, however, is that international banking regulation could develop in a direction after January 1, 2025 that the Federal Council cannot fully foresee today. By sticking to the introduction date, the state government risks that the Swiss financial institutions will end up with unequally long tables in global competition, says Ita.
Switzerland found itself in a similar role when it introduced the OECD minimum tax earlier this year, while major economic powers are still waiting.
Top rating from the Basel Committee on Banking Supervision
According to an official overview, Switzerland is one of the model students, and not just in terms of time, when it comes to the implementation of global minimum standards in banking regulation. In terms of content, it is also one of the states that have implemented the previous “Basel III” rules most precisely. The Basel Committee on Banking Supervision, which coordinates banking regulation internationally, gives the Confederation the top rating of “compliant” for the implementation of the capital requirements.
The EU and Great Britain, on the other hand, are labeled “essentially non-compliant”. The United States, on the other hand, currently has a “mostly compliant” rating, but the trend is likely to be towards non-compliant in the future.
Critical voices in the Swiss financial center fear that the model student role could harm the Swiss banks in the medium and long term: When implementing “Basel III final”, the Confederation did not use the leeway available to it to make the reform more acceptable for the financial center to design. Higher risk weights in conjunction with stricter capital requirements put Swiss banks at a significant disadvantage in individual business areas.
The major bank UBS would be particularly affected by different, stricter capital regulations as part of “Basel III final”. Secondly, there are also internationally oriented banks that compete for customers and orders outside of Switzerland.
Banks are already losing orders
According to bank officials, the fact that Switzerland is playing the role model is already having an impact on business. A high-ranking representative of a well-known institute reports to the NZZ that his employer is already losing orders abroad due to “Basel III final”. According to its own statements, the financial institution can no longer offer certain transactions at competitive prices because in the future it will have to back them with more equity than its foreign competitors.
Another bank representative warns that the Swiss economy could face higher financing costs in the future as a result of strict banking regulation. That would not only harm the banks, but all companies. But in the Federal Republic of Bern, unlike in the United States or Great Britain, such concerns are met with little understanding.
At the request of the NZZ, the State Secretariat for International Financial Affairs (SIF) confirmed that delaying the “Basel III final” implementation was out of the question: Firstly, the reform is already in force in countries such as Japan and Canada. Secondly, the impact of a different implementation schedule in the United States and Great Britain is considered to be small. What is financially crucial for the banks is the implementation costs of the new rules, and the amount is independent of when they are introduced. Effectively higher capital requirements can be expected “essentially” at the big banks – i.e. UBS.
For the big bank, the next tightening of capital requirements will begin a few weeks after “Basel III final” comes into force on January 1, 2025. The Federal Council should then send the next revision of the Capital Requirements Ordinance for consultation.
Even higher capital requirements await UBS
UBS is supposed to provide its foreign subsidiaries with more equity as a consequence of the CS crisis. The only thing that is controversial is the extent. The new director of the Federal Financial Market Supervisory Authority, Stefan Walter, urges in interviews that foreign investments should be backed 100 percent with equity capital. Depending on the severity of the regulation, UBS would have to hold between 15 and 25 billion francs in additional equity. The bank is defending itself against this. “If you have too much capital, you punish the shareholders, but also the customers, because banking services become more expensive,” said the Chairman of the Board of Directors, Colm Kelleher, to the NZZ in March.
Finance Minister Karin Keller-Sutter’s State Secretariat for International Financial Affairs (SIF) attaches great importance to the statement that no general capital adjustments are planned for banks, but rather “a specific adjustment for systemically important banks with large foreign subsidiaries”. This measure strengthens stability and indirectly also competitiveness. “The competitiveness of the financial center and the economy remains a central concern of the Federal Council,” says Bern.
However, critical voices in the financial center say that Switzerland is affording expensive additional regulation that is no longer needed. The downfall of Credit Suisse is in the past. You can no longer take out a death policy for a deceased person.
