Thursday, 16 October 2008

Switzerland pumps billions into bank rescue plan

Switzerland announced a nearly $60 billion bailout of its largest bank on Thursday, shaking the country's reputation as a financial haven pr
otected from the global meltdown by its hallowed tradition of discreet and conservative investing.

Most of the bailout money will go to create a $54 billion fund to buy bad securities backed by subprime U.S. mortgages and other high-risk securities from UBS AG, whose move into risky investments departed radically from the Swiss tradition of cautious money management.

UBS and the country's second-largest bank, Credit Suisse, account for 67 percent of $3.1 trillion on Swiss banks' balance sheets. They employ almost half of the 109,000 people who work for banks in the country of 7.5 million.

The rescue plan includes tighter regulation for banks, including new caps on the maximum debt they can incur and closer scrutiny of management pay and incentives.

``The state serves society, and there are moments when the state has to step in,'' Swiss President Pascal Couchepin said.

Credit Suisse Group turned down the bailout and said it would raise $8.75 billion on the open market. The largest amount would come from the Qatar Investment Authority, a government-controlled fund.

The government's move was a dramatic break from repeated assurances that the Swiss system was immune to meltdown. Swiss officials said Thursday that the country's other 300-plus banks remain healthy because of large deposits from Swiss and wealthy foreigners.

Source: EconomicTimes

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