Société Générale and UBS are both rushing to raise money this month to restore their badly damaged capital bases. In the case of the French bank, this is largely the result of an alleged trading fraud, plus some gambling in the US subprime market. At the Swiss bank, the cause is mainly gambling, on an even larger scale, in the US mortgage markets.

What both affairs show is that banks ultimately rely on a single defence mechanism when trouble hits: their own equity capital. The question regulators must now be asking themselves is whether the strains being put on this safety net have now gone beyond reasonable limits. In other words, have all those banks that have aggressively expanded in all sorts of new financial activities reinforced and enlarged this safety net sufficiently to take into account all the new pressures and risks involved? The short answer in the case of both SocGen and UBS is clearly no. Otherwise why would SocGen be rushing to raise €5.5bn ($8bn) in fresh funds through what is expected to be a heavily discounted rights issue? And why would UBS be asking its shareholders to approve a SFr13bn ($11.8bn) capital injection by the Government of Singapore Investment Corporation (GIC) and a Saudi Arabian investor?