* Swiss bank rules to remain stricter than abroad
* Political support strong, public may lose interest
* Bank lobby warns against competition disadvantages
By Sven Egenter
ZURICH, Oct 29 (Reuters) - Swiss regulators look set to keep their global lead on tightening bank rules despite competition concerns among bankers, thanks to strong political support for tighter reins on UBS and Credit Suisse.
Anxiety is running high on both sides of the debate, with some bankers fretting publicly at Swiss readiness to go it alone on tighter regulation, while proponents of this approach fear time may be running out to get new curbs in place.
One year after Berne bailed out UBS, the Swiss National Bank and financial watchdog FINMA is still committed to curbing risks at the two banks, whose combined liabilities are almost six times Swiss gross domestic product (GDP) of around 540 billion Swiss francs ($526.8 billion).
Bank lobbyists have said that insisting on a strong "Swiss Finish" -- a traditional Swiss top-up to international banking rules -- may hit lenders' competitiveness just when the country's profitable wealth management business is under pressure from a global crackdown on tax havens.
But regulators and top politicians are not wavering.
"The situation with the large exposure to two big banks forces us to have a Swiss Finish on regulation, whether the large banks like it or not," said Christian Levrat, head of the Social Democrats (SP), which have two of the seven ministers in Switzerland's government made up of the main parties.
With solutions to critical issues, such as how to unwind a bank in a crisis, still outstanding, Swiss officials worry the window for regulation is closing as banks return to profit and the public quickly loses interest in the complex issue.
"It's obvious that there is more lobbying," said Beat Bernet, banking professor at the university of St. Gallen. "But at the same time, regulators and politicians seem to have gained confidence and insight."
Top regulators have kept flexing their muscles recently.
"We have taken decisions that were very well thought through," FINMA Chairman Eugen Haltiner told Reuters earlier this month. "There is no reason to take them back even if international standards were not to go as far."
SNB Vice-Chairman Philipp Hildebrand, who has won global recognition for his drive for tougher rules, sent a clear message in his most recent speech: "This is ... decisively not the time for banks to push back against these regulatory reforms."
WARNINGS
Switzerland has led the global campaign for new regulation, starting to draw up stricter capital requirements as early as spring 2008, well before the UBS October bailout.
Credit Suisse, which managed without state aid through the crisis, was quick to comply with the new requirements, beefing up capital and meeting a newly-introduced leverage ratio well before the 2013 deadline set by FINMA.
The bank was also ahead in bringing its payment system into line with proposals made by the G20 group of powers by unveiling a new compensation structure last week.
UBS is planning changes to its bonus system, an internal memo obtained by Reuters showed, and is also on track to meet Switzerland's required 16 percent capital ratio, which is twice the current international standard.
But bankers' unease about Swiss regulators' drive is growing. One high-ranking Swiss official, who asked not to be identified, said the lobby had clearly shifted gears by expressing its concerns more publicly.
In particular, there is strong resistance to Switzerland taking the lead on the "too-big-to-fail" issue by drawing up its own rules to unwind or break up a bank in a crisis.
"Everything must be done to reach a global agreement on the resolution of global banks," the head of the Swiss Bankers Association, Urs Roth, told Reuters, voicing doubts over other countries' commitment to tightening bank rules.
One month ago, UBS Chief Executive Oswald Gruebel joined the chorus of those warning against the Swiss going it alone.
"It is dangerous for the international competitiveness of the Swiss financial industry if the regulators in Switzerland turn the screws tighter and quicker than happens in other financial centres," Gruebel said.
CLOSING GAP
International proposals such as those from the Basel Committee on Banking Supervision point to a closing gap between Swiss and global rules. Regulators in Britain and the United States are mulling how to mitigate the risks from banks whose failure would destabilise markets.
But no other major financial centre has so far matched the Swiss drive and most experts -- including bankers -- expect a "Swiss Finish" to global rules to remain.
FINMA head Haltiner said Switzerland could now assess the new global rules before deciding on further steps.
But some officials worry public interest will fade before the risks are properly addressed as news about bank profits may soon suppress the memories of the UBS rescue.
In a highly unusual move, SP head Levrat teamed up in September with the vice-president of the populist SVP, Christoph Blocher, and Swatch-founder Nicolas Hayek to call for a firm stance on banking regulation.
Regulators also enjoy support from the centrist CVP -- the party of Swiss Economy Minister Doris Leuthard. Only the traditionally more business-friendly Free Democrats (FDP) is sceptical about the Swiss keeping a lead on regulation.
"We are sceptical about a Swiss Finish," FDP President Fulvio Pelli said. "If we do not get international rules, we should not over-regulate the Swiss banking system."
The public, meanwhile, is torn between experiences from the crisis and their long-standing high regard for the banks.
In an opinion poll by consultancy Young & Rubicam in mid-October, only 7 percent of the Swiss said banks had learned the lessons of the crisis. But at the same time, only 20 percent thought breaking up the large banks was the right step to reduce the risks for the economy.
(Reporting by Sven Egenter; editing by Stephen Nisbet)