Swiss banks UBS AG (UBS) and Credit Suisse Group (CS) may need to raise their liquidity levels. The two Swiss banks may need to retain 45% of their customers’ deposits as the Swiss regulator intends to increase their liquidity requirements.
 
The banks may need to hold 45% of their customers’ demand deposits in cash or in highly-liquid securities such as government debt. The higher liquidity level represents almost three times the cash the Swiss banks are currently required to hold for the deposits. However, the banks are discussing with the regulators so that liquidity requirements may be lowered.
 
The higher liquidity requirements by the Swiss regulators are intended to better position the Swiss banks to survive another crisis. However, this would also restrict capital and increase the cost of capital. Indirectly, this would limit in the lending of the Swiss banks.
 
UBS AG received a support of 6 billion francs ($5.8 billion) from the Swiss government for its risky assets spin-off. The Swiss government also took an 8.5% stake in the bank. Both UBS AG and Credit Suisse have written down billions due to credit related woes.
 
The Swiss regulators are planning to disclose new liquidity management criteria in the first quarter of 2010, which Banks have to put into practice in the second quarter of 2010.
 
Swiss banks’ assets are bigger than the gross domestic product of any G-10 country. However, the recent dilution of the Swiss bank secrecy is resulting in massive fund outflows as worried investors are eyeing a safer refuge. Moreover, if tighter liquidity requirements are implemented, the profitability of Swiss banks would be significantly impacted.
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