Lawmakers in Switzerland have agreed to raise the Core Tier one Capital requirement to a whooping 19%. This leaves behind the dismal 7% implemented by Basel III as a minimum tier one capital requirement. It is estimated that the Swiss Banks will have to raise around 108 Billion Pounds in the near future.
The passing of this bill by the upper house will ensure that Swiss banks remain as the safest place in the financial world to bank with as they will be the most liquid. However the lower house still has to agree to this proposal which will be heard in September this year.
The 19% core tier one capital includes 10 % in traditional capital requirements with the further 9% coming from C0C0 Bonds. CoCo bonds are a kind of hybrid between debt and equity: they are issued as debt but convert automatically into equity when a bank gets into trouble. Therefore although not pure capital in the traditional sense, CoCo bonds makes the bank take on more responsibility which is ultimately what regulators want.
In the UK George Osbourne has indicated that he might implement the higher 10% capital ratio recommendation by the independent banking commission. He is also looking into the recommendation that core banking activities should be ring-fenced in order to protect the depositor for higher risk investment banking.
Similarly the Financial Policy Committee is set to meet for the first time today. According to Mr Osbourne the role of the FPC is to "monitor overall risk in the financial system. identify bubbles as they develop, spot dangerous inter-connections and deploy new tools to deal with excessive levels of leverage before its too late." a wide mandate given to the Bank of England.
The Bank of England Governor Mervin King said " Until we find a solution to the 'too important to fail' problem, the size of the banking system will remain too large for the UK taxpayer credibly to support in the future'
The FPC will release its first report based on todays meeting on the 24th of June.
CoCo bonds:
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