Switzerland moved to restore confidence in its banking system on Thursday, agreeing to fund a vehicle that would take on most of the toxic debts held by UBS (NYSE: UBS - News) and injecting SFr6bn (€3.9bn) to help recapitalise its former national banking champion.

The intervention in UBS came as its cross-town rival, Credit Suisse (NYSE: CS - News) , raised SFr10bn from strategic investors including the Qatar Investment Authority.

The proceeds of the fundraising by UBS will be immediately ploughed back into the bail-out vehicle, which is backed by the central bank and designed to hold up to $60bn in mainly US mortgage assets.

The government injection represents the third capital raising by UBS this year, and is an attempt by the bank to put the subprime crisis behind it. Under the terms of the deal, the government will buy SFr6bn of mandatory convertible notes, instruments that pay a fixed coupon like bonds but convert into shares at a later date. It contrasts with commitments made by the UK to take direct equity in some of its biggest banks.

Switzerland's action follows bank bail-outs across Europe and comes amid fears the country might be accused of not pulling its weight internationally.

The move was criticised by parliamentarians on both left and right, who disapproved of using state funds to aid a private company. But ministers emphasised it was on attractive terms and essential to put UBS back on an even keel. UBS denied the government's stake was a "rescue", because the bank did not face collapse.

"UBS is strongly capitalised but has a credibility problem," said Jean-Pierre Roth, governor of the Swiss National Bank.

Mr Roth's comments came as UBS revealed it had suffered net outflows of almost SFr50bn in the third quarter in its powerhouse wealth management and business banking division, after smaller net withdrawals in the previous three months.

Marcel Rohner, the bank's chief executive, said the outflows, which had peaked as customers grew nervous in September, had been in all regions, but were concentrated among retail clients and in Switzerland.

The government's rare step came as Credit Suisse said it had declined government assistance in favour of raising SFr10bn from Qatar's sovereign wealth fund, the Olayan family of Saudi Arabia and Israel's Koor Industries.

The fresh finance will lift Credit's Suisse's tier 1 ratio to the equivalent of 13.7 per cent at the end of September, making it the best capitalised of Europe's leading financial institutions. Credit Suisse said its capitalisation would meet the - as yet unpublished - higher standards being sought by the regulator for 2013, as well as the new, and also as yet undisclosed, leverage ratio on lending proposed by the central bank.

Investors reacted positively to the banks' moves, although shares of UBS and Credit Suisse gyrated widely amid broader market developments. UBS closed down almost 5 per cent at SFr19.09, while Credit Suisse closed down 0.87 per cent at SFr45.50, after both banks had risen substantially earlier in the day.

The moves came as both banks pre-released their third-quarter results. UBS announced a net profit of SFr296m, boosted by a SFr912m tax credit. Credit Suisse said it expected to lose SFr1.3bn after tax.

Additional reporting by Simeon Kerr in Dubai