The FINANCIAL — Credit Suisse takes note of the recommendations of the Expert Commission of the Federal Council that are designed to solve the ‘too big to fail’ issue relating to the big banks.
Credit Suisse has prepared for the developments in the regulatory landscape over the past two years by reducing its risk-weighted assets and strengthening its capital base. Credit Suisse believes that its client-focused, capital-efficient strategy, which will lead to the accretion of capital through earnings, will allow it to meet these very stringent measures by 2019.
Credit Suisse takes note of the measures recommended by the Expert Commission in its report to the Federal Council, which seek to limit the risks posed by systemically relevant institutions. The proposed measures will strengthen the stability of the financial system. They also represent an appropriate solution to the ‘too big to fail’ problem relating to the big banks without compromising their international competitiveness or that of the Swiss financial center.
Credit Suisse welcomes the fact that the recommendations from the Expert Commission, which was appointed by the Federal Council, build on the international minimum standards announced by the Basel Committee on Banking Supervision in September 2010, which will gradually take effect from 2013 (Basel III). However, the recommendations go well beyond the minimum requirements of Basel III and also beyond the current ‘Swiss finish’.
The recommended measures foresee significant efforts by the big banks to strengthen the quality of their capital over the next few years, since the basis for meeting the new capital requirements will be a tight definition of common equity. There will be a reasonable transition period with full phase-in by January 1, 2019. If the new measures were to be applied to Credit Suisse's current business portfolio using the expected Basel III risk weightings – which should be finalized by December 2010 – and assuming CHF 400 billion of risk-weighted assets, a holding of 10% in common equity and 19% in total capital would be required by 2019.
Credit Suisse has been preparing for these regulatory changes for the past two years. The bank developed its client-focused, capital-efficient strategy in anticipation of the future tightening of regulation. Over the last two years, risk-weighted assets under the Basel II rules were reduced by around 30% and the tier 1 ratio was strengthened, rising from 10.4% as at September 30, 2008, to 16.3% as at June 30, 2010. Today, Credit Suisse is one of the world’s best capitalized banks. In addition, Credit Suisse believes it will be an attractive issuer of contingent convertible bonds, which can be partly used to fulfill these capital requirements.
Credit Suisse believes that, despite these very tough measures, it can meet the new requirements within the prescribed timeframe by building capital through earnings and by issuing contingent convertible bonds. With a very disciplined implementation of its client-focused, capital-efficient strategy, as of today Credit Suisse is confident that it will be able to comply with these new measures without having to materially change its growth plans or current capital and dividend policies.
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