ZURICH, June 28 (Reuters) - The Swiss government wants to tighten capital rules for the country's three most important domestic lenders, it said on Wednesday, as it seeks to protect its financial system in the event of a crisis.
The government reviews bank rules every two years to judge if they comply with international standards and ensure taxpayers do not have to bail out big banks that run into trouble.
It said on Wednesday it saw no need for fundamental changes to the regulatory approach, but suggested extending "gone concern" rules beyond big banks UBS and Credit Suisse to include primarily domestic lenders PostFinance AG, Raiffeisen and Zuercher Kantonalbank.
"Like for the big banks, they should reflect the going concern capital requirements, but only 40 percent of them. With this proposal, the (government) is taking into consideration the fact that the banks in question are less interconnected internationally and are thus less systemically important," it said.
It instructed the finance ministry to work with the FINMA watchdog and the Swiss National Bank (SNB) on a draft.
Banks deemed important for the financial system must maintain enough "going concern" capital to operate in a stress scenario without state support.
They also have to hold "gone concern" capital used to restructure a troubled bank or keep alive its important functions without state help.
Earlier this month, the SNB told UBS and Credit Suisse they still need to draft credible plans for potential insolvency as part of Swiss efforts to prepare for a potential banking crisis.
Even so, the government said on Wednesday it had concluded Switzerland's existing regulatory approach for reducing risk posed by systemically important banks was suitable.
"Overall, the approach is to be seen in a positive light by international standards," the Federal Council said. "It is not necessary to fundamentally adapt the regulatory model." (Reporting by Michael Shields; Editing by Elaine Hardcastle)