Home » Safer banks – Scientists also call for more equity for banks – News

Safer banks – Scientists also call for more equity for banks – News

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Safer banks – Scientists also call for more equity for banks – News

After the financial crisis, the supervisory authority Finma continuously increased the capital requirements for banks. They did not want to risk having to save systemically important banks again because they are too big – and then have to be saved by taxpayers. It happened nonetheless, although the financial market supervisory authority attested Credit Suisse a solid capital base. Now politicians want to force banks to set aside even more funds for hedging. The claim is controversial.

Own funds requirements steadily increased

Basically, the business model of the banks consists of making money with someone else’s money – from savers, for example. The capital is then used for business loans or mortgages. It allows companies to invest or families to buy a house.

Legend:

New equity ratio regulations could also affect mortgage lending.

KEYSTONE/Steffen Schmidt

The more money the banks have to put aside as security, the less they have to work with. In recent years, the capital requirements for systemically important banks – in Switzerland these are CS, UBS, Postfinance, Zürcher Kantonalbank and Raiffeisen Bank – have risen steadily and are now around five percent. Central President Gerhard Pfister pleaded in the media for an equity ratio of 20 percent, four times what it is today.

One third equity

Anat Admati, economist and professor at the Stanford Graduate School of Business in California, finds an equity ratio of between 20 and 30 percent of the balance sheet total to be appropriate: “If the banks had more equity, they would be much more stable in a weak phase. Equity is not suddenly gone. You would have more time to react, »she says.

In such phases, banks are no longer allowed to pay dividends, according to Admati. The dividends reduce the equity again. In a phase in which interest rates are rising and the economy is slowing down, this is absurd.

For economics professor Andreas Dietrich from the Lucerne University of Applied Sciences and Arts, this demand goes too far. “Equity is one thing, liquidity another. If you have a lot of equity but not enough liquidity, equity doesn’t help in this situation either. It has to be a mix so that a bank becomes more stable,” says Dietrich.

Cantons depend on dividends

The banking professor has little to gain from the demand to cut dividends. These would make bank stocks less attractive.

A crisis doesn’t prevent that, but it hurts investors: “That would have negative consequences for small investors and also for pension funds. Dividend payments by the cantonal banks are very important for cantons in Switzerland. A stop would have unpleasant consequences for their financial budget.”

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