GENEVA – The Swiss government is doubling the amount of capital banks must hold against residential mortgage risks as it tries to prevent the country’s property market from overheating.
Switzerland’s governing Federal Council last year started requiring banks to hold an extra 1 per cent capital cushion against real-estate risks. On Thursday, it said it will increase it to 2 per cent by June 30 at the central bank’s request.
A government statement said the capital cushion has helped make banks more resilient but a “sustained strong increase in mortgage loans and the prices of residential properties” has increased imbalances that “constitute a considerable risk for the stable development of the economy.”
The Swiss Bankers Association said it’s disappointed by the decision saying the capital cushion isn’t an effective way of controlling property prices.