SNB chief: 'Too big to fail' banks still a problem

Apr 30, 2010, 11:43 GMT

Geneva - Switzerland's biggest banks are still 'too big to fail,' the head of the country's central bank said Friday calling for reform.

Swiss National Bank (SNB) Chairman Philipp Hildebrand said at the annual shareholders' meeting that despite the largest banks cutting their balance sheets, they remained in dominant positions.

The country recently announced it was imposing new regulatory capital requirements on the big banks, namely UBS AG and Credit Suisse AG.

Hildebrand said the capital requirements are designed to be progressive.

'This progressive nature should incentivise the banks to reduce their systemic importance,' he said at the meeting in Bern.

'The capital requirements must be sufficiently strict to motivate the banks to bear the risks themselves which, up to now, they have been able to pass on to the general public.'

In the event of a future crisis - which the new regulations passed and being planned currently were meant to prevent - the SNB chief called for a system which would eliminate the need for state intervention if the banks were in trouble and allow for their orderly wind-down if needed.

Addressing the state of the overall economy, the central bank chief said that the worst of the crisis was over.

'Today, the worst is behind us. We can look to the future with a measure of optimism,' he told the shareholders.

Looking forward, Hildebrand reiterated the bank's stance that it would continue to act to prevent an 'excessive' rise in the value of the franc versus the euro, a problem which could become larger as the troubles in the periphery of the European Monetary Union persist and the value of the unified currency slips.

Hildebrand said the risk of deflation had subsided and while the expansionary policy of the bank would continue for now, past the medium-term this would not be sustainable.

The SNB, he said, was grappling with figuring out when would be the right time to pull in the reigns, while maintaining price stability and keeping inflation at a moderately low level.