Credit Suisse has set out plans to separate its domestic operations from its more risky investment banking business, as part of post credit-crunch efforts to insulate Swiss taxpayers from costly bank bailouts.

The move puts Credit Suisse's domestic retail, commercial and private banking operations in a "lifeboat" more immune to market vagaries and represents its response to Swiss efforts to avoid a repeat of the 2008 financial crisis, during which the government was forced to rescue rival UBS.

In its “living will” announced yesterday, Credit Suisse said it would set up a Swiss subsidiary from mid-2015 and would begin booking investment banking business in the region it originated. For example, a US derivatives business now booked at a London investment banking hub will be moved to the bank’s US broker-dealer unit.

Credit Suisse is aiming to win relief from tough Swiss rules, a gold-plated approach bankers have dubbed the “Swiss finish,” with the measures.

The bank said its board had backed the outline of the plan but it still must be analysed and approved by regulator Finma, which can grant a rebate from the capital rules.

The reaction of other regulators outside Switzerland also remains to be seen, given that the plan could mean the investment bank being allowed to go under if it hits problems, exposing creditors and counterparties to the resultant losses.

Swiss banking rules go beyond international standards, demanding banks hold more capital as a proportion of their so-called risk-weighted assets - in effect making it less profitable to stay in that business.

UBS and Credit Suisse retain a free hand on what businesses to remain in, but have incentives for them to either curb riskier trading activities or exit them entirely. The rules also require emergency plans on how to separate activities in Switzerland, where the big banks’ balance sheets are worth many times Swiss gross domestic product.– (Reuters)