OECD urges tough rules for Swiss banking giants

Stricter bank rules drawn up by the Swiss government to prevent the need for costly bailouts do not go far enough, the Organisation for Economic Cooperation and Development said on Tuesday.

OECD urges tough rules for Swiss banking giants
Giorgia Xenakis (File)

In its latest survey, the body urged more stringent — and speedier — regulations for Switzerland’s two biggest banks to protect the economy and taxpayers in times of financial crisis.

Credit Suisse and UBS “continue to pose large systemic risks,” the OECD warned.

Lawmakers agreed a set of measures in September designed to make financial institutions better equipped to absorb losses in future, including a capital ratio of 19 percent and a leverage ratio of five percent. The legislation will not be fully implemented until 2019.

The OECD said the reforms would go a long way to reducing dangers but that the leverage ratio figure, which limits the amount of debt that can be used to finance the bank’s assets, “is still modest in view of the risks involved.”

“The need for substantial tightening of capital requirements is reinforced by the absence of an internationally co-ordinated resolution mechanism which could help avoid the rescue of a failing bank by the government,” said the report.

“It is crucial that, at the least, the proposed capital requirements for the Big-2 are implemented in full. A stricter leverage ratio requirement should be introduced.”

Swiss banking is dominated by Credit Suisse and UBS. The latter suffered major losses in the 2008 financial crisis and was the subject of a government rescue package including a capital injection of six billion francs ($6.4 billion).

While Swiss banks’ direct exposure to the current euro debt problems is low, “Switzerland could be affected by global financial turbulence through the banking sector,” OECD secretary general Angel Gurria said while presenting the report in Bern.

Swiss Economics Minister Johann Schneider-Amman told the conference that the recent legislation had been agreed as part of an “acceptable compromise” among lawmakers and that the schedule was fixed for its implementation.

“The important issue is that we came to a reasonable decision, we have got to follow it and we will achieve it at the latest by 2019,” he said.

“In the meantime it is in the best interests of the two big guys concerned to make sure that they achieve their stability.

“If it is done earlier and more ambitiously,” then nobody would blame them, said the minister, addressing media in English.

In its analysis of the Swiss economy in the same survey, the OECD said recovery from recession slowed in 2011 and forecast a period of stagnation in the near term, particularly in the manufacturing sector, due to decreased trade and the strong Swiss franc.

This is in line with the forecast of the Swiss government which predicts weak or negative growth at the start of 2012 but ending the year with 0.5 percent growth, compared with 0.8 percent growth in 2011.

“The economic stability of Switzerland has stood out in the context of economic and financial instability in the rest of the world,” said Gurria, who attributed the country’s “early, balanced” recovery from the financial crisis to its sound budgetary rules and labour market.

Switzerland, with its youth unemployment figure at 2.5 percent last year, represented a “dramatic exception” from other OECD countries where the figure is closer to 20 percent and in some cases 30 or 40 percent, Gurria said.

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Deutsche Bank to pay $130m to settle US bribery probes

Deutsche Bank will pay $130 million to settle a foreign bribery probe and fraud charges in precious metals trading, US officials announced on Friday.

Deutsche Bank to pay $130m to settle US bribery probes
A woman walks past the offices of Deutsche Bank in London. Photo: Tolga Akmen / AFP
The bribery case relates to illegal payments and to false reporting of those sums on the bank's books and records between 2009 and 2016, the Department of Justice said in a press release.
The bank “knowingly and wilfully” kept false records after employees conspired with a Saudi consultant to facilitate bribe payments of over $1 million to a decision maker, the DOJ said.
In another case, the bank paid more than $3 million “without invoices” to an Abu Dhabi consultant “who lacked qualifications… other than his family relationship with the client decision maker,” the DOJ said.
In addition to criminal fines and payments of ill-gotten gains, Deutsche Bank agreed to cooperate with government investigators under a three-year deferred prosecution agreement.
In the commodities fraud case, Deutsche Bank metals traders in New York, Singapore and London between 2008 and 2013 placed fake trade orders to profit by deceiving other market participants, the DOJ said.
The agreement took into account Deutsche Bank's cooperation with the probes, DOJ said.
“Deutsche Bank engaged in a criminal scheme to conceal payments to so-called consultants worldwide who served as conduits for bribes to foreign officials and others so that they could unfairly obtain and retain lucrative business projects,” said Acting US Attorney Seth D. DuCharme of the Eastern District of New York.
“This office will continue to hold responsible financial institutions that operate in the United States and engage in practices to facilitate criminal activity in order to increase their bottom line.”
“We take responsibility for these past actions, which took place between 2008 and 2017,” said Deutsche Bank spokesperson Dan Hunter, adding that the company has taken “significant remedial actions” including hiring staff and upgrading technology to address the shortcomings.