Swiss government to intervene with its big banks?

Government intervention for banks?

It seems its not only large English banks that could do with regulating amidst a potential bail out. This week, Swiss financial regulators were calling for new legislation with regard to controlling and regul ating potentially unstable large banks.

Switzerland is anxious to preserve its status as a safe and reliable financial centre - it is keen to avoid the catastrophic co nsequences of a large bank failing, such as Lehman Brothers in the United States and Iceland's Kaupthing.

The two largest Swiss banks, UBS and Credit Suisse, own a 15 percent share of financial domestic product, and any suggestion that these two power houses were to go bankrupt would cause major issues for the region.

In addition, in Switzerland both banks employ tens of thousands of people, and this figure does not include other workers who are directly impacted in other countries and other businesses.

"If Switzerland is serious about tackling the problem of institutions being too big to fail, then radical changes are required," said Finma chief executive Patrick Raaflaub. "The [government] and parliament need to take responsibility for this."

Potential for disaster

The potential for disaster goes beyond the tax payer. UBS needed a SFr6 billion (US$5.6 billion) capital injection two years ago to tide it over, but covering the total assets of either bank - each valued at several times that of Swiss GDP - would be beyond the powers of the state.

In opposition to the potential intervening by the government, Nuno Fernandes, a professor of finance at the prestigious IMD business school in Lausanne told swissinfo.ch "Government intervention would be very dangerous. Any legislation would result in additional capital requirements or taxes and that would translate into higher costs for customers. That would translate into higher mortgage rates.

"Breaking up banks may actually increase systemic risk [to the economy as a whole]."

"Regulation must make the financial system safer, but it should not make it inflexible and sluggish," Credit Suisse chief executive Brady Dougan told the Sonntag newspaper earlier this month. "This would hamper economic growth and job creation."

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