ZURICH: When Swiss lawmakers meet next month to draft new capital requirements for UBS, they are likely to strike a balance between protecting taxpayers from a future banking crash and allaying the bank’s fears it could be rendered uncompetitive.
Parliament is expected to water down the around US$20bil in additional Common Equity Tier-1 (CET1) capital sought by the government, according to lawmakers, as many fear requiring a permanent buffer of this scale could scare off UBS’ investors.
“We certainly don’t want to put taxpayers’ money at risk for a possible bank bailout, but we also mustn’t weaken UBS unnecessarily,” said Fabio Regazzi, a lawmaker of the Centre Party, which will be decisive in crafting a majority.
“I’m confident we’ll find a compromise,” Regazzi said, stressing he would work to ensure that final rules take both Swiss financial stability and UBS’ competitiveness into account.
The measures drafted in response to the 2023 collapse of Credit Suisse and its subsequent takeover by UBS will be adopted in parliament’s December session at the earliest.
But an influential parliamentary committee to which Regazzi belongs that has a reputation for business-friendliness is poised to set the tone for the debate.
At meetings set for Aug 10, 11 and 31, the upper house’s Economic Affairs and Taxation Committee will consider lowering the government’s proposed requirement for UBS to back its foreign units with 100% CET1 core capital to about 70%, 80%, or even 50%.
That could reduce the buffer in extra capital UBS must hold, after a transition, to anything from about US$12bil to zero.
Committee members aim to reach a decision next month, which would get the bill to the upper house in September and might allow for final capital rules to be passed by the end of 2026.
However, the matter remains contentious and majorities behind any concession proposal still unclear, lawmakers say.
Officials have vigorously underlined how anything short of UBS fully backing its foreign units with CET1 capital could pose a risk to financial stability since the bank’s balance sheet is bigger than Switzerland’s economy.
The Swiss National Bank (SNB) said this month partial backing implies some of the capital must cover risks at both the parent bank and its foreign units, contravening financial prudence.
Other regulatory experts have echoed its concerns. The SNB stance could bolster the case for a higher percentage of required CET1 capital, parliamentary sources said.
UBS argued that the need to hold an extra US$20bil in CET1 capital would put it at a disadvantage when competing against big US banks.
With so much capital tied up, the bank would have less money available to buy back shares, invest in artificial intelligence or fund expansion in key markets, two people familiar with the bank’s thinking said.
Fees for Swiss clients could go up, hurting the economy, one of the people said.
It could also result in lower bonus payments, a third source close to the bank said, affecting its ability to attract and retain talent.
UBS declined to comment beyond pointing to a previous statement in which it criticised the government proposals, describing them as out-of-step internationally, and forecast they could have serious consequences for the Swiss economy. — Reuters
