class=”sc-3778e872-0 cKDKQr”>
The Credit Suisse case shows that banking regulation in Switzerland has failed. The “too big to fail” law was in effect: the big bank could be declared bankrupt and the systemically important domestic portion could be salvaged. However, in the face of imminent turmoil in the financial markets, the Federal Council abandoned the emergency regime and ordered a merger with UBS. Politicians want to tighten regulations to ensure that such a solution is no longer possible in the future.
Center Chairman Gerhard Pfister (60) made one of the first suggestions when he proposed a 20 percent equity ratio in the Sunday paper two weeks ago. This is a solid foundation today, a lower quota creates incentives for higher risks. Literally Pfister: “By contrast, executive floors justify high bonuses. When things go wrong, taxpayers must step in. Therefore, I am convinced that the core of the problem is the lack of fairness. »
30 billion additional equity in Raiffeisen
20 percent equity – what does this mean concretely? Raiffeisen, the second largest banking group in Switzerland, currently has “hard” equity of 20.5 billion. If you add additional capital instruments, the bank actually needs CHF 50 billion.
Raiffeisen lost exactly 29.5 billion. A bank can build equity by holding profits or raising capital. Both are expensive – capital costs are around 10 percent. In the Raiffeisen example, this means that an additional 30 billion of equity would add 3 billion francs per year.
To raise this money, the bank would have to increase its margins. With 200 billion mortgage loans, Raiffeisen is one of the largest housing financiers in Switzerland. To withdraw an additional 3 billion from this portfolio, the bank would need to increase the price of each mortgage by 1.5 percent.
A five-year mortgage currently costs 3 percent annual interest. If the head of the center fulfills his request, the interest rate will rise to 4.5 percent and the mortgage will be 50 percent more expensive. With a mortgage of 500,000 francs, the annual interest is no longer 15,000 but 22,500 francs. This results in an additional fee of CHF 625 per month.
With a Saron mortgage with a lower interest rate, the Pfister premium will be significantly higher. Depending on the creditworthiness of the borrower, the bank’s margin is no longer 0.7 to 1.1 percentage points, but more than doubled.
Raiffeisen fears ‘serious restrictions on lending’
Raiffeisen in principle confirms these calculations. In the bank statement: “A higher leverage ratio (equity to total assets ratio; ed.) can be achieved through capital accumulation, balance sheet reduction, or a combination of both.
If this value is to be achieved through capital accumulation alone, the Raiffeisen Group would have to “increase its equity by more than 30 billion francs,” according to its own statements. How much more expensive does this measure make customer loans? The bank is cautious about this: There is no “general” answer to this question. “In general, however, it can be argued that (…) the costs associated with holding very high capital should, at least to some extent, be passed on to customers.”
Raiffeisen is confident: “A shrinkage in the balance sheet would result in severe restrictions on lending – the corresponding economic consequences.” Some loans become prohibitively expensive, no longer given or even terminated.
Barend Fruithof (55), chairman of the Aebi-Schmidt industry group and board member of the Swissmem industry association, warns of such a development: “Gerhard Pfister’s demand is insufficient and could cause major economic damage.” Fruithof, formerly responsible for the corporate client business at CS, continues: “A leverage of this magnitude can have huge ramifications for the business. Borrowing costs will increase significantly. Many SMEs that cannot switch to foreign banks will also be hit with credit.”
Gerhard Pfister is unwilling to comment on the possible consequences of his 20 percent offer. “We should be able to discuss this question without bias, regardless of what banks and their lobbyists think about it. After the bailout of UBS, we did exactly what the banks wanted.”
Source :Blick
I’m Tim David and I work as an author for 24 Instant News, covering the Market section. With a Bachelor’s Degree in Journalism, my mission is to provide accurate, timely and insightful news coverage that helps our readers stay informed about the latest trends in the market. My writing style is focused on making complex economic topics easy to understand for everyone.
