Mr Daniel Zuberbuehler, Director of the Swiss Federal Banking Commission, said a takeover of UBS was not likely despite the fall in shares and ruled out a merger with domestic peer Credit Suisse.

'When you look at the share development, it is really an open question whether the rescue package is sufficient,' Mr Zuberbuehler was quoted as saying in an interview with Swiss Sunday newspaper.

'If more happens, it (UBS) would need willy-nilly a further capital increase,' he added.

Risky investments at UBS' investment banking division forced it to make nearly US$49 billion (S$74.83 billion) of writedowns and prompted Berne to announce on Oct 16 it would inject 6 billion Swiss francs (S$7.45 billion) into the world's biggest wealth manager to prevent its collapse.

But as the spiralling financial and economic crisis keeps UBS' shares under pressure, the state will likely have to offer more capital, the regulator said.

'As with many other foreign countries, the Confederation must inject more capital if necessary,' he said.

Switzerland depends on its banking system more than other countries, as its bank liabilities are equal to about seven times its gross domestic product, raising potential systemic concerns.

The top regulator said a takeover of UBS was an option that was considered before the Oct 16 state aid package.

But he said this option was now less realistic despite the fall in the UBS share price because a suitor would have to take up to US$60 billion dollars of illiquid assets the bank has agreed to transfer to a central bank-run fund as part of the rescue package.

'A buyer would have to take over also the whole rescue package, including the illiquid assets that are with the central bank,' he said.

Mr Zuberbuehler said a merger with Credit Suisse, Switzerland's other top bank, would not be a solution to UBS' problems.

'It would not be good. We do not want such a monster for this small land,' he said.

Credit Suisse had initially fared better in the crisis as it had a limited exposure to the toxic US subprime-related assets that cause problems at UBS and other major banks.

It declined state help and was able to raise capital on its own in October. But its shares have also halved in value this month, signalling the bank is not immune from the overall crisis.

'It (CS) too suffers from the general market development given its investment bank,' the regulator said. -- THOMSON REUTERS