Tuesday, August 14, 2012

Switzerland as Iceland

Something Finance Ministers and Central Bankers think about:

Deutsche Bank's assets are equal to  81% of Germany's €2.66 trillion GDP.
Switzerland's commercial banks are somewhere between four and six times larger than Swiss GDP
(depending on how you count them)
When Iceland had its banking crisis the bank's loans and other assets were between 10 and 11 times Iceland's GDP.

Talk about Too big to bail.

From Bloomberg:
SNB Seen Targeting Bank Capital to Curb Property Boom: Mortgages
Thomas Jordan’s fight to protect the Swiss economy is set to widen beyond currency markets and too- big-to fail risks as the central bank chairman considers how to curb the biggest real-estate boom in two decades.

The Swiss National Bank may act to stem what it called risks from “excessive credit growth,” economists from Bank Sarasin to UniCredit Group said. An option available to the central bank would be to force lenders to hold additional capital of as much as 2.5 percent of their domestic risk- weighted assets to help buffer against losses.

The SNB has already put a cap on the franc to counter the currency’s ascent and protect the economy. After leading efforts to boost capital requirements for UBS AG (UBSN) and Credit Suisse Group AG (CSGN), the country’s two largest banks, Jordan is now turning his focus to smaller lenders as the risk of a significant drop in property prices increases.

“The SNB has been warning for quite a while of a real- estate bubble and it wants to see a cooling,” said Andreas Venditti, a senior analyst at Zuercher Kantonalbank in Zurich. “It’s very possible that the buffer will be implemented before the end of the year.”

In the SNB’s June Financial Stability Report, which also called on Credit Suisse, Switzerland’s second-largest bank, to boost its capital, the central bank said the mortgage market poses a significant risk to Swiss lenders. Home loans have increased by almost 300 billion francs ($307 billion) in a decade and gained 5.2 percent last year to 797.8 billion francs. That’s about 140 percent of Swiss gross domestic product....MORE
As History Squared says:
"...except for the positive trade balance, Switzerland resembles Iceland ."