The CEO of Union Bank of Switzerland, Sergio Ermotti, has today come out against plans to raise bank leverage ratios.
In an interview published in the Schweiz am Sonntag newspaper Ermott noted that Swiss regulators already require more than their counterparts abroad and says
On the requirement of 6-10% all I can say is that this is an unrealistic high demand
Last month the Swiss fin min said that the country’s banks should be subject to a leverage ratio of between 6-10% compared to 3% for global banks under rules that come into force in 2018.
Ermotti argues that such a policy would lead to higher interest rates on mortgages and corporate loans, and end the banks’ ability to offer the favourable loans which had benefitted the Swiss economy for the past 50 years.
He added that regulators should not focus exclusively on the leverage ratio but also take into account a bank’s risk weighting and stress test. He noted that there was no globally recognized definition of the leverage ratio, adding
Already about 25% of Swiss banks are earning no money, and another 25% have such low margins that they are unlikely to survive in the long term
Last week the SNB in its monthly policy statement said it was vital for UBS and Credit Suisse to improve capitalization and leverage ratios.
Banking leverage ratios globally have become, quite rightly, a major consideration in the wake of the latest financial crisis and, as I have highlighted here on a number of occasions, banks have been quick to soak up cheap money to shore up capital bases.
Finding the right balance between that and lending money onward into the economy is crucial if any signs of recovery are to take hold.
So far it’s been a balancing act that’s proving somewhat less than successful.
