(Adds Raiffeisen, Postfinance comment)
By Michael Shields
ZURICH, June 28 (Reuters) - The Swiss government wants to tighten capital rules for the country's three most important domestic-focused lenders, it said on Wednesday, to protect its financial system in the event of a crisis.
The government reviews bank rules every two years to judge whether they meet international standards and to ensure that taxpayers will not have to bail out big banks that run into trouble.
It said on Wednesday that it sees 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 , Raiffeisen and Zuercher Kantonalbank .
"Like for the big banks, they should reflect the going concern capital requirements, but only 40 percent of them," the government said.
"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."
The government has instructed the finance ministry to work with the FINMA watchdog and Swiss National Bank (SNB) on the rules changes.
Raiffeisen said it could live with the government's proposal and build up its so-called total loss-absorbtion capacity capital buffers during a transition period.
Postfinance simply took note of the proposal, while a ZKB representative was not immediately available for comment.
Banks deemed important to 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.
The SNB this month 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 that it had concluded that 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." (Additonal reporting by Angelika Gruber; Editing by Elaine Hardcastle and David Goodman)