UBS has won a significant boost in its battle with the Swiss government after influential lawmakers backed a proposal to substantially reduce the bank’s proposed new capital requirements.
Under the compromise plan, UBS would still be required to fully back its foreign subsidiaries at the Swiss parent level, but up to half of that requirement could be met through additional tier 1 (AT1) bonds rather than common equity tier one (CET1) capital, the highest-quality and most expensive form of bank capital.
The recommendation represents a victory for UBS and chief executive Sergio Ermotti, who has strongly criticised the federal government’s proposed capital rules, arguing that they were excessive and could damage the bank’s international competitiveness as well as Switzerland’s position as a global financial centre.
At the centre of the dispute are government proposals requiring UBS to fully capitalise its foreign subsidiaries at its Swiss parent using CET1 capital. UBS had faced the prospect of increasing its capital by $20bn under the government’s plans, creating uncertainty for the bank and its shareholders.
The stakes are particularly high because UBS’s $1.7tn in assets exceed the size of the entire Swiss economy. Policymakers have therefore been attempting to strengthen safeguards around the country’s largest financial institution without undermining one of its most important companies.
The compromise was proposed by lawmakers on the economic affairs and taxation committee in the Swiss parliament’s upper house. Under the plan, UBS would continue to fully back its foreign subsidiaries, but could meet up to half of the requirement with AT1 bonds instead of CET1 capital.
JPMorgan analysts have previously estimated that the compromise would mean UBS would need to raise only an additional $400mn in CET1 capital while securing about $16bn in new AT1 bonds.
Erich Ettlin, chair of the economic affairs and taxation committee, sought to frame the proposal as a broader national compromise rather than a victory for the bank. He described it as “not being a victory for UBS but as a solution that serves Switzerland”.
The government’s tougher capital requirements form the centrepiece of a wider overhaul of banking regulation following the collapse of Credit Suisse in 2023. The crisis ended with UBS taking over its longtime rival in an emergency rescue engineered by Swiss authorities.
Bern argued that the collapse exposed weaknesses in Switzerland’s “too big to fail” regulatory regime. It maintained that requiring UBS to fully capitalise its foreign subsidiaries would provide greater protection for the Swiss parent against losses elsewhere in the group, which has major operations in regions including the US and Asia.
The proposed easing comes as Switzerland faces a broader international regulatory debate. Other major financial centres, including the US, UK and EU, are moving to ease or simplify parts of their banking regulations in an effort to strengthen competitiveness, putting Switzerland’s approach under additional scrutiny.
The proposed reliance on AT1 bonds could nevertheless remain politically sensitive. Swiss regulators wiped out around SFr16bn of AT1 instruments held by Credit Suisse during the bank’s rescue. Investors challenged the move, and the Federal Administrative Court ruled it unlawful last October. The case is now awaiting a decision from the Federal Supreme Court.
Monday’s recommendation indicates that UBS has made significant political headway, but it does not settle the dispute. Any changes to the government’s proposals must ultimately secure the support of both chambers of parliament.
The upper house is due to debate the reforms in mid-September, when lawmakers can accept, reject or amend the committee’s recommendation. The proposals would then proceed to the lower house.
The government has previously rejected allowing UBS to meet the new requirements through a combination of equity and debt, arguing that anything short of full backing with CET1 capital would be ineffective. UBS and the finance ministry declined to comment on the committee’s recommendation.
