The Swiss National Bank (SNB) urged Credit Suisse, the country's second largest bank, to boost its reserves ahead of a potentially disastrous escalation in the eurozone banking crisis.
The SNB said Credit Suisse should "take all action necessary to expand its loss-absorbing capital base significantly during the current year", by curtailing risky investments, suspending dividend payments or raising capital by issuing shares.
The SNB also said rival UBS, which had to be bailed out by the Swiss government in 2008, should boost its capital buffers by limiting dividend payments.
"The SNB considers that the big banks' loss-absorbing capital is still below the level needed to ensure sufficient resilience," vice chairman Jean-Pierre Danthine said.
Switzerland has come under seige during the euro crisis from foreign investors seeking a safe haven. An influx of funds has put intense pressure on the currency, leading the central bank to say last year that it would peg the Swiss franc against the euro to cap further rises.
Funds, however, have continued to pour in, especially to Geneva, various ski resorts and the hedge fund managers' favourite destination, the canton of Zug.
The SNB said it was determined to defend the cap of 1.20 francs to €1 and was ready to buy foreign currency in unlimited quantities.
"Even at the current rate, the Swiss franc is still high. Another appreciation would have a serious impact on both prices and the economy in Switzerland," said chairman Thomas Jordan.
"The SNB will not tolerate this. If necessary it stands ready to take further measures at any time."
Jordan declined to confirm speculation that he is close to imposing capital controls to prevent funds entering the country. "Concerning capital controls, there are various experiences and various ways to implement them and there are also countries that have had positive experiences with these measures in the recent past," he said.
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