“While the big banks’ leverage has decreased, it nevertheless remains high by historical and international standards. Losses in the order of roughly 2 per cent of total assets at UBS and 3 per cent at Credit Suisse would currently deplete most of these banks’ capital base unless simultaneous corrective measures were taken,” the Swiss National Bank said.

“Second, as a result of the lower profit potential, the big banks’ ability to absorb losses through current earnings has decreased,” the SNB said in its 2009 Financial Stability Report.

However, the SNB said banks with more of a focus on the domestic Swiss market, such as the cantonal and regional banks, “present a more favourable picture”.

“While these bank categories saw their average profitability shrink moderately in 2008, it still remains above the long-term average. In addition, their capital base remains high by historical standards and they were able to build up their liquidity reserves last year,” the report continued.

UBS and Credit Suisse, both large wealth managers, have been hit by the credit crunch, although UBS has sustained by far the larger hit, booking about $50 billion of write-downs from the credit crunch to date, and has announced a round of job cuts.

In aggregate, the Swiss banking industry booked a total net loss of SFr21 billion ($19.5 billion) in 2008, compared with a collective profit of SFr15 billion in 2007, the report said. “Together, the losses for the big banks in 2008 totalled SFr29 billion,” the report said.

The more domestically focused banks recorded a net profit in 2008 of SFr8 billion, a fall of 32 per cent from the profits made in 2007.

The report pointed out that the Swiss financial regulator, FINMA, has acted to strengthen capital requirements on the two large banks; in 2008, the regulator said that the banks must meet risk-weighted capital requirements in good times that are about twice as high as what they are at present. FINMA has also limited the leverage ratios that banks can sustain. In economically benign conditions, the capital base of a bank should be at least 5 per cent of the balance sheet total.