Switzerland pumps billions into bank rescue plan

Like Swiss chocolate, Swiss watches and Swiss knives, Swiss banking had a reputation for high standards and top quality. But Swiss banks have not been immune to the global financial crisis and the government stepped in Thursday with a nearly USD 60 billion bailout for the nation's largest bank.

Most of the bailout money will go to create a USD 54 billion fund to buy bad securities backed by subprime US 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 per cent of USD 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 USD 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 on Thursday said that the country's other 300-plus banks remain healthy because of large deposits from Swiss and wealthy foreigners.

The bailout announcement caused turmoil on the Swiss stock exchange, sending UBS shares down 4.93 per cent for the day.