FRANKFURT am MAIN, Germany, September 20 (Global Risk Regulator) – The rogue trading scandal at Swiss bank UBS underlines the importance of the tougher global bank capital rules that Switzerland has made even more stringent, according to a top Swiss central banker.
Thomas Wiedmer, alternate member of the Swiss National Bank’s governing board, told a regulatory conference in Frankfurt yesterday that the UBS case shows “how important it is that a bank has enough capital because that’s the way you put confidence in a bank.”
Wiedmer also co-chairs the liquidity working group of the Basel Committee, the body of top banking supervisors that sets international banking standards and which devised the Basel III package of stronger capital and liquidity rules for banks following the global financial crisis. Switzerland has made the rules even tougher in the case of its banks.
In his remarks to the conference, which was arranged by the ICBI event organising firm, Wiedmer vigorously denied Basel III was in any way anti-American, as alleged last week by JP Morgan Chase chief executive Jamie Dimon. Dimon suggested in a UK Financial Times newspaper interview that the US should opt out of Basel III if the pact proves not to be in America’s national interest. The US banker was particularly critical of the Basel III capital surcharge on the world’s largest banks, which would include Morgan Chase and UBS but which Dimon said would mainly affect big American banks.
UBS last week disclosed a $2.3 billion loss arising from unauthorised trading by a London-based trader in its investment banking arm. The bank said it’s possible this could result in a loss for the third quarter. But no client positions were affected and the bank remains solvent.
“If you compare the value-at-risk numbers (a measure of the risk of loss on a specific portfolio of financial assets) used by UBS to the actual loss incurred, you see the huge difference between what the risk models tell you and what the actual loss in the real world can be,” Wiedmer said. That’s another reason why the Basel Committee is seeking to ensure that banks have enough capital in place, he added.
The new Swiss capital framework, which encompasses a capital buffer element that greatly helped UBS absorb its loss, requires overall capital of 19% for big banks, including 10% core equity capital compared with the 7% minimum core capital set by Basel III, Wiedmer noted.
Asked for his reaction to Jamie Dimon’s remarks, Wiedmer told a questioner: “I don’t know what he’s talking about. We never sat down in Basel and said ‘Oh let’s come up with a regulatory framework that’s anti-American’. But he acknowledged that Dimon may be “a little bit worried” about Basel III’s impact on American banks.
Phil Suttle, chief economist with the influential Washington-based Institute for International Finance (IIF), which lobbies on behalf of the world’s biggest financial institutions, said it’s not so much the capital surcharge on big banks that’s a source of concern in the US.
“The thing I hear US banks complaining the most about is risk asset weighting. That’s the thing where they feel the European banks (along with Canadian banks) get a huge break and that US banks are treated punitively,” Suttle said.
In separate remarks to the conference, European Banking Authority alternate chairman Thomas Huertas said the surcharge “is not anti-American. It is anti-big financial institution.”
“And why?”, Huertas asked. “Because these institutions represent a concentration risk for the taxpayers of the world and society.”
As the institutions pose a concentration risk to society at large, the surcharge is designed to reduce the probability that any one of them would fail, added Huertas who is also a member of the executive committee of Britain’s Financial Services Authority watchdog.
David Keefe (firstname.lastname@example.org)