UBS and Credit Suisse should improve leverage ratio

(Bloomberg) -- UBS Group AG and Credit Suisse Group AG should strengthen their leverage ratios, the Swiss National Bank said Thursday, reiterating a recommendation it has made repeatedly in recent years for the country’s two biggest banks.

“While the Swiss big banks’ risk-weighted capital ratios are above the average for large globally active banks, the same cannot yet be said for their leverage ratios,” the SNB said in its annual financial stability report. “It can be expected that regulatory developments at both international and national level will result in increased capital requirements. The Swiss big banks should prepare for these developments.”

The Swiss government in February announced plans to draw up tougher leverage ratios, a measure of financial strength, for UBS and Credit Suisse by the end of the year.

Banks are required to hold a minimum of capital as a cushion against losses, an amount that depends on the riskiness of their investments. Increasingly, regulators are also turning to leverage ratios, a broader, simpler accounting of a bank’s liabilities that doesn’t involve weighting assets by their riskiness.

The global momentum behind leverage ratios has increased amid concern some banks may be using internal models to conceal their vulnerability and thus scale back their capital requirements.