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Swiss government imposes leverage ratio for all banks, eases liquidity mandates

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Swiss government imposes leverage ratio for all banks, eases liquidity mandates

All Swiss banks will have to hold capital equivalent to at least 3% of their total assets, the government's Federal Council said Nov. 22.

As part of revisions to its capital adequacy ordinance aimed at bringing Swiss policy in line with the Basel III global framework, the requirement, known as the leverage ratio, will be introduced for all non-systemically important banks with effect from Jan. 1, 2018. Systemically important banks — i.e. UBS Group AG and Credit Suisse Group AG — are already subject to a far more stringent regime that can require them to hold up to 10% of total assets.

In addition, Switzerland will from Jan. 1, 2019, introduce tighter rules on risk diversification, which aim to avoid losses that can arise from such concentrations and are considered a cause of bank insolvency. Under the new rules, risk concentrations will be measured in terms of the share of Tier 1 — or highest-quality — capital that they represent, with Tier 2 capital no longer considered.

Banks will also be allowed "only very restricted use of models for determining their risk concentrations, as modelling errors have a major impact when calculating these risks," the government said, adding that other changes concern overruns of risk concentration limits, the weighting of certain assets and adjustments of special rules for systemically important banks.

Separately, the Federal Council said it would ease Basel provisions on bank liquidity, particularly for smaller banks. The implementation of the net stable funding ratio, which requires banks to have a certain proportion of long-term funding, will be postponed from its scheduled date of Jan. 1, 2018, with the government to re-examine it at the end of 2018.

The government cited delays in the net stable funding ratio's implementation by the U.S. and the EU.

Meanwhile, changes to take effect Jan. 1, 2018, will ease the terms of the liquidity coverage ratio for smaller banks. The ratio mandates that banks have a supply of easily sellable assets equivalent to the outflows they would expect to see over a 30-day period of stress.