Following UBS's 2023 takeover of Credit Suisse, the Swiss National Bank (SNB) is advocating for stricter capital rules, backing the government's proposal for UBS to hold approximately $20 billion in additional Common Equity Tier 1 (CET1) capital. SNB Vice Chairman Antoine Martin emphasized that the increased concentration in the banking sector necessitates stronger regulations, particularly concerning capital requirements and collateral preparation, to prevent future crises and protect taxpayers. The SNB argues that the full backing of foreign subsidiaries with CET1 capital is crucial for financial stability, especially given UBS's significant share of the Swiss deposit and loan market, which grew from 14% of loans and 16% of deposits in 2022 to roughly a quarter in 2024.
However, UBS has strongly opposed the government's proposal, contending that the requirement for an extra $20 billion in CET1 capital is extreme and would undermine its competitiveness against large U.S. banks. The bank argues that such a significant capital tie-up would limit its ability to buy back shares, invest in AI, or expand in key markets, potentially leading to higher fees for Swiss clients and lower bonus payments that could affect talent attraction and retention. Lawmakers from various parties acknowledge these concerns and are wary of the potential negative impact on Swiss finance and the economy.
Swiss lawmakers are now seeking a compromise. While the government initially proposed 100% CET1 backing for foreign subsidiaries, parliamentary committees are considering alternatives such as lowering this requirement to 70%, 80%, or even 50%, which could reduce the additional capital needed to between $0 and $12 billion. Another key point of discussion is the possibility of allowing UBS to use Additional Tier 1 (AT1) capital for part of the requirement. AT1 bonds are cheaper to hold than CET1 and are designed to absorb losses during crises, though their effectiveness in stabilizing a struggling bank versus merely absorbing losses during a wind-down is debated. The upper house's Economic Affairs and Taxation Committee has delayed a vote on these new rules, with the next meeting scheduled for August 31, and a final decision is expected by the end of 2026.
Despite the legislative pushback and the potential softening of requirements, there is broad agreement among committee members that UBS should still hold more capital than it currently does. Finance Minister Karin Keller-Sutter has dismissed suggestions to use more AT1 bonds, citing their uncertain record in past banking crises. However, the government has signaled willingness to soften other parts of its reform package, particularly those concerning intangible capital like deferred tax assets and software, which could add $3 billion in requirements. These measures do not require parliamentary approval and could offer a concession, while UBS's parent bank unit reportedly already holds an excess of $13 billion in capital above regulatory requirements.
