Swiss lawmakers are debating revisions to proposed capital rules for UBS that could materially reduce the financial burden placed on Switzerland’s largest bank, following the collapse of Credit Suisse in 2023, according to reporting by Reuters. The discussions in parliament center on how strictly UBS should be required to back its foreign subsidiaries with high-quality capital, in a regulatory overhaul aimed at strengthening financial stability.
Draft legislation submitted in April by the Swiss government originally proposed that UBS fully back its foreign units with Common Equity Tier 1 (CET1) capital, a measure intended to prevent a repeat of Credit Suisse’s failure. However, Reuters reported that lawmakers are now considering alternative structures that would ease this requirement, with options under discussion lowering the backing level to between 70% and 80% of CET1 capital.
Under the government’s original proposal, UBS would be required to fully capitalise its foreign subsidiaries at 100% CET1. However, sources cited by Reuters said the revised proposals under consideration could significantly reduce that requirement, potentially cutting billions of dollars from UBS’s estimated capital needs. Analysts referenced in the reporting estimated that an 80% requirement could reduce the burden to approximately $15 billion, compared with an estimated $20 billion under the full requirement.
UBS, which has become Switzerland’s only remaining global banking institution following its acquisition of Credit Suisse, has strongly criticised the proposed regulatory framework. Reuters reported that the bank has described the original capital plan as “extreme,” arguing that such stringent requirements could weaken its global competitiveness. UBS chief executive Sergio Ermotti has indicated that the bank expects to be affected by the reforms, even if compromises are reached.
Earlier discussions within parliament included even more flexible proposals, including a possible 50% CET1 backing requirement for foreign subsidiaries. According to Reuters, this idea was also examined during a lengthy parliamentary hearing in Bern, where government officials and UBS executives presented opposing positions on the future structure of Swiss banking regulation.
The broader policy debate reflects an effort by Swiss authorities to balance financial stability with the competitiveness of the country’s most important bank. Following the collapse of Credit Suisse, the government has pushed for stricter oversight to reduce systemic risk, while UBS has warned that excessive capital demands could harm its international operations. Reuters reported that tensions have also emerged between UBS and Swiss Finance Minister Karin Keller-Sutter over the scope and impact of the proposed rules.
In addition to CET1 requirements, lawmakers are also considering whether UBS could rely more heavily on Additional Tier 1 (AT1) capital instruments, which are generally considered riskier but less costly for banks. The Swiss government has expressed reservations about expanding the role of AT1 capital, while some parliamentary discussions have explored hybrid approaches combining different capital buffers.
Another element under review is the potential linkage between UBS’s capital obligations and fees related to a planned public liquidity backstop, which would serve as an emergency funding mechanism for major financial institutions. Reuters reported that lawmakers are examining whether such fees should be integrated into the broader capital framework as part of the regulatory package.
The parliamentary committee currently overseeing the legislation is viewed as relatively sympathetic to UBS’s concerns about the economic impact of stricter rules. However, Reuters noted that the final outcome remains uncertain, as centrist and moderate political blocs are expected to play a decisive role when the bill is brought to a full parliamentary vote later this year.
With proposals still in flux, Reuters reported that a compromise between the government’s original 100% requirement and the more relaxed alternatives is increasingly seen as a possible outcome. Such a middle-ground approach could determine how much additional capital UBS must ultimately hold, and how Switzerland balances financial security with maintaining the global competitiveness of its largest bank.
