(Bloomberg) -- Swiss regulators should re-examine the capital requirements placed on UBS Group AG in the light of its increased size following the takeover of Credit Suisse, the Swiss National Bank said. 

“The systemic importance of UBS has increased considerably with the acquisition of Credit Suisse,” the central bank said in its annual report published Tuesday. As capital requirements progress according to size and market share, “a review needs to be made as to whether the progression takes adequate account of this increase in systemic importance,” the SNB said.

Switzerland is overhauling its financial regulation in the wake of last year’s near-collapse of Credit Suisse, with the government set to publish a key report on new regulation next month. The government-backed takeover has resulted in UBS’s balance sheet becoming more than twice the size of the domestic economy. 

Read More: UBS Powers Past $100 Billion One Year After Credit Suisse Shock

While Credit Suisse met all regulatory requirements at the time of the takeover and its crisis centered more on a liquidity shortage, debate around UBS’s capital levels continues as the government prepares its reform measures. UBS Chairman Colm Kelleher said in an interview with the Neue Zurcher Zeitung at the weekend that the bank’s buffers were well above the required levels. 

“If you have too much capital, you penalize the shareholders, but also the clients, because banking services become more expensive,” he said. “We already have capital buffers that are well above the regulatory minimum.”

Liquidity Needs

Still, there is doubt whether the current requirements are sufficient, according to the SNB. The crisis at Credit Suisse showed that “its compliance with the current liquidity requirements” was not sufficient to cover its liquidity needs, it said in the report.

“The current liquidity regulations underestimate operational needs for liquidity and potential outflows of deposits, particularly from large clients,” it added. “The prospects of successful stabilization or resolution are seriously undermined if the bank in question has already lost a large proportion of its deposits base.”

The SNB also reiterated its view that lenders should also be required to prepare much more collateral in order to obtain liquidity from central banks in a crisis situation. The SNB is introducing a streamlined process to make accessing liquidity help easier, by facilitating the pledging of mortgages.

If not enough collateral is available, a state-backed liquidity backstop needs to be in place, according to the SNB. In line with this demand, the government is currently working on putting such in place permanently, after it introduced it by emergency law to help Credit Suisse.

“The SNB recognizes a need for action in the areas of early intervention, capital and liquidity requirements, and resolution planning,” it said in the report. 

(Adds SNB comment from sixth paragraph)

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