by Matthew Allen, swissinfo.ch  Switzerland’s largest cantonal bank will now face the stiffest regulatory scrutiny after being officially named alongside UBS AG (NYSE:UBS) and Credit Suisse AG (NYSE:CS) as a “too big to fail” financial institution by the Swiss National Bank (SNB) on Monday.

As a consequence, Zurich Cantonal Bank (ZKB) may have to shed risk or boost its capital buffer further to shield both itself and Switzerland’s economy from potential failure. By the end of 2018, ZKB will now need to cover up to 19% of its risky trades with capital, up from the maximum of 14.4% needed before it joined the elite list of heavyweight banks.

“Category one” systemically relevant (too big to fail) banks, to which small group ZKB now belongs, also face the regulatory hurdle of holding a minimum of 4.56% of capital to cover all assets no matter how risky – known as the leverage ratio.

ZKB would not immediately comment on how it would meet its new obligations, but is holding a press conference on Monday afternoon.

The canton-owned bank had already asked Zurich’s parliament in January for an extra CHF2 billion ($2.2 billion) in funding to meet enhanced regulatory demands. The decision has yet to be made whether to raise the amount of taxpayers’ money underpinning the bank to CHF4.5 billion (from CHF2.5 billion currently).

The ambitious ZKB has been busily expanding its business in recent times, in particular its wealth management services. But the international push for growth has led to some problems, most notably a criminal investigation in the United States into allegations that the bank helped US citizens evade taxes.

ZKB is among a handful of Swiss or Swiss-based financial institutions that are enduring full blown probes by the Department of Justice on this issue. The Basel Cantonal Bank is the other Swiss state-owned bank on this list.

With a capitalisation of CHF150 billion ($162 billion) at the end of last year, ZKB is the fourth largest banking group in Switzerland, behind UBS, Credit Suisse and Raiffeisen. It realised profits of CHF744 million in 2012, employed just over 5,000 staff and managed nearly CHF200 billion of clients’ wealth.