* Swiss central bank out with 2017 financial stability report
* UBS, Credit Suisse need credible insolvency plans
* Banks on track to meet Swiss too-big-to-fail capital rules (Recasts, adds new quote, detail)
ZURICH, June 15 (Reuters) - Switzerland's central bank on Thursday told the two big Swiss banks, UBS and Credit Suisse, they still need to draft credible plans for a potential insolvency, as part of the country's efforts to prepare for a banking crisis.
After the financial crisis in which UBS suffered billions of dollars in losses and took a government bailout, Switzerland introduced new regulations designed to protect the economy from a possible banking collapse.
The Swiss National Bank (SNB), which helps oversee the stability of Switzerland's financial system, said the two big banks are on track to meet the new capital requirements but more work was needed in planning for a potential bankruptcy.
"In view of the significance of resolution as a means of resolving the 'too big to fail' issue in Switzerland, it is essential that further progress be made in drawing up robust resolution plans," the SNB wrote in its annual financial stability report.
The two big banks, whose combined balance sheets are more than two-and-a-half times the size of Switzerland's economy, have already set up Swiss subsidiaries that house the functions crucial to Switzerland.
However, they still need to demonstrate how they would be able to maintain these systemically important services when faced with impending insolvency, the SNB said.
They will also need to bolster their "gone-concern" capital, applicable in situations where a bank must be wound down following insolvency.
UBS and Credit Suisse are on track to meet updated too-big-to-fail (TBTF) capital requirements by end-2019, the SNB said, though it cautioned they still need to improve their total loss-absorbing capacity for their leverage ratios.
The TBTF rules include a headline requirement for UBS and Credit Suisse to hold core capital worth 5 percent of total assets, known as the leverage ratio. At least 3.5 percent of the leverage ratio is to be made up of high-quality common equity tier 1 (CET1) capital.
They will also need to meet a common equity Tier 1 (CET1) ratio of 10 percent. The CET1 ratio of capital to risk-weighted assets is a closely watched measure of balance sheet strength.
After raising about 4 billion Swiss francs ($4.1 billion) this year, Credit Suisse said it would have a CET1 ratio of 13.4 percent and a leverage ratio of 5.1 percent, based on first-quarter reported numbers.
UBS had a CET1 ratio of 14.1 percent at the end of the first quarter and a CET1 leverage ratio of 3.55 percent.
The banks did not immediately respond to a request for comment on the SNB report.
($1 = 0.9709 Swiss francs)
(Reporting by Joshua Franklin; Editing by Amrutha Gayathri)