Draft legislation must also impose a stricter leverage ratio requirement on Swiss banks, the OECD said in a report released on Tuesday. “The regulator should require the Big-Two to hold more loss-absorbing capital relative to total assets in the near term,” the report says, though it does not recommend any immediate figure the banks should target. “The need for substantial tightening of capital requirements is reinforced by the absence of an internationally coordinated resolution mechanism which could help avoid the rescue of a failing bank by the government. “It is crucial that, at the least, the proposed capital requirements for the Big-Two are implemented in full.” A proposed 5 per cent leverage ratio requirement should also be extended, the OECD says, claiming that the mooted level is only “modest” compared with the risks involved should the banks experience heavy losses. In its previous survey the OECD had claimed that the leverage ratio should total just 4 per cent. It adds that “preferably” common equity should also contribute a larger share to the capital requirement, claiming that recent studies have shown that heightened capital requirements “do not generate substantial social costs”. Send us your thoughts (in strict confidence) or submit an article in response: Email: [email protected]
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