2010.10.0606:55:00UTC+00SNB's Hildebrand: Basel III Does Not Address "Too Big To Fail": FT

The Basel III minimum capital and liquidity standards will increase the resilience of the global banking system, but does not address the "too big to fail" problem, Swiss National Bank Chairman Philipp Hildebrand said Wednesday.

"The new rules leave authorities with the same terrible choice should a systemically important bank again find itself on the brink of failure: accept financial and economic turmoil, or inject taxpayer money to keep it afloat," he wrote in Wednesday's edition of the Financial Times.

Hildebrand's comments came days after the Swiss Financial Market Supervisory Authority said UBS and Credit Suisse must hold significantly more capital than stipulated by the new Basel banking reforms to defuse the "too big to fail" problem in Switzerland. The Basel III reforms proposed that internationally active banks must hold 7% of capital as reserves so that they could withstand future shocks in the financial system.

SNB chairman said Switzerland faces a particularly pronounced "too big to fail" problem. Despite impressive reductions since the crisis, the balance sheets of UBS and Credit Suisse are still a multiple of Swiss gross domestic product, he added.

If implemented, Hildebrand said, the recommendations made by the Swiss Financial Market Supervisory Authority will significantly mitigate the risks posed by systemically important institutions.

Yesterday, SNB Vice Chairman Thomas Jordan said the introduction of increased capital requirements will not impact growth negatively. Instead, it will work as a cushion at difficult conditions, the policy maker noted.

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