Switzerland upped the ante in a global regulatory assault on the banking industry on Thursday as its central bank warned that Zurich was examining the forced shrinkage of banking groups such as UBS and Credit Suisse to contain the risks posed by their size.

The central bank is looking at imposing constraints on the size of its biggest domestic banks unless global policymakers can come up with a new system to deal with large banks when they fail.

Philipp Hildebrand, vice-chairman of the Swiss National Bank, said: “There can be no more taboos, given our experiences of the last two years.”

“There are advantages to size …[but] in the case of the large international banks, the empirical evidence would seem to suggest that these institutions have long exceeded the size needed to make full use of these advantages,” Mr Hildebrand said as the central bank unveiled its stability report.

UBS and Credit Suisse prompted alarm among authorities about the risks their size posed to the Swiss economy when they reported heavy losses as a result of the financial crisis. Last year, their collective assets were equivalent to six times Swiss GDP.

The central bank envisaged “direct and indirect measures to limit [large banks’] size,” said Mr Hildebrand.

His comments on Thursday caused unease among Swiss banks, which said that the SNB did not have direct responsibility over banking regulation and therefore lacked powers to implement any such controls.

“This is strong language,” said one bank executive. “But the SNB doesn’t have a direct say in the regulation of the banks.” Another said Mr Hildebrand’s comments were “little more than sabre-rattling”.

However, the remarks will be scrutinised by policymakers and investors on both sides of the Atlantic. They come as central bankers and regulators around the world are ratcheting up language on banking reform.

Mr Hildebrand called for regulators to work together to develop an international process for the orderly wind-down of a broken bank. But he warned that, if that process could not be designed in a “reasonable” time frame, then more direct measures should be examined.

He did not spell out exactly how he wished to curb banks’ size. However, the ideas being looked at involve crude limits on the absolute size of balance sheets or discouraging growth into risky areas by raising capital requirements.

On Wednesday, the governor of the Bank of England Mervyn King fired a warning shot across the bows of the industry, pointing out that regulators could not tolerate a situation where numerous banks were deemed “too big to fail.” And the debate could intensify in Washington in the coming weeks, since politicians are due to start debating a series of reform measures that the Obama administration hopes to implement to clean up the banks.

In Brussels on Thursday, the European Union’s 27 member states were poised to approve plans to strengthen financial supervision in Europe amid British reservations about yielding certain national powers to EU authorities.

Gordon Brown, UK prime minister, on Thursday night secured a guarantee from EU leaders that the new supervisory system would not include powers to force national governments to bail out banks. Diplomats said the summit communiqué would say that any EU-level decision would “not impinge in any way on the fiscal responsibilities of the member states”.

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