The Swiss government has unveiled sweeping financial reforms that could force UBS to boost its capital by up to $18bn — a proposal the bank previously slammed as “extreme” and “excessive.” The measures are part of a broader effort to safeguard the country’s banking system following the dramatic collapse of Credit Suisse in 2023.
In a statement on Friday, Switzerland’s Federal Department of Finance (FDF) said the reforms aim to ensure UBS fully capitalises its foreign subsidiaries, a sharp departure from current rules that allow the bank to match just 60 per cent of their capital at the parent level. If approved, the new rules would raise that threshold to 100 per cent, triggering a significant capital increase.
“The Credit Suisse crisis made it clear that the Swiss parent bank’s capital base was insufficient,” the FDF said. “This package is intended to substantially reduce the likelihood that another systemically important bank will require emergency state intervention.”
UBS, which acquired its rival in a government-engineered rescue last year, would need to increase its common equity tier one (CET1) capital by roughly $26bn under the new rules. However, the bank could offset this by reducing its AT1 bond holdings by $8bn, resulting in a net increase in “going concern” capital of $18bn, according to FDF estimates based on 2024 figures.
The proposal comes amid continuing fallout from the Credit Suisse debacle. The Financial Times previously reported that Swiss regulators had in 2017 allowed the troubled bank to inflate the value of its foreign subsidiaries, a move condemned as “incomprehensible” in a parliamentary report last year.
The capital overhaul is just one part of a broader legislative and regulatory package. The FDF also plans to strengthen banks’ capital quality by tightening how assets such as in-house software and deferred tax assets are treated. These adjustments are expected to be implemented via executive order by 2027.
Additionally, the government is introducing a new “senior managers regime” that would clarify top-level responsibilities within banks and link them to potential sanctions in the event of misconduct. Bonus clawbacks, tougher early intervention powers for regulators, and dividend restrictions are also on the table.
Despite the urgent tone from regulators, UBS has pushed back strongly. The bank has argued that such capital hikes could hurt its ability to compete globally and hamper its international growth plans.
“Growth abroad is still possible [for UBS],” the FDF insisted. “But increases in the value of foreign subsidiaries or further acquisitions must now be fully backed by capital — not debt at the parent’s expense.”
The reforms still need parliamentary approval and are not expected to become law before 2028. UBS would then have a transition period of six to eight years to comply.
But political resistance is mounting. Lawmakers from across the spectrum are divided. The right-leaning Swiss People’s Party has raised concerns over competitiveness and suggested reining in UBS’s investment banking operations instead. Liberal parties share worries about the burden of additional regulation, while leftwing parties are pushing for even stricter capital and liquidity standards.
One upper house lawmaker told the Financial Times, “The real lobbying starts now, and we are preparing for negotiations to last for years. Parliament has been known to be persuaded by it in the past.”
Given Switzerland’s unique system of direct democracy, the reforms could also face a national vote. A referendum triggered by 50,000 signatures could delay implementation until 2029 — or derail the law altogether.
Meanwhile, market uncertainty surrounding the proposed changes has weighed on UBS’s share price. The bank declined to comment on the new proposals.
As Switzerland works to repair the credibility of its financial regulatory framework in the wake of the Credit Suisse collapse, the fate of the UBS reforms could become a litmus test for balancing systemic safety and global competitiveness in one of the world’s most influential banking hubs.
