UBS shares climbed by approximately 3% after senior Swiss lawmakers privately indicated to bank executives that new capital requirements would be less stringent than initially proposed. The original finance ministry proposals, which followed the 2023 collapse of Credit Suisse, sought to increase UBS's capital requirements by around $22 billion. This "too big to fail" package aimed to protect depositors, but critics, including UBS, argued it would harm Switzerland's competitiveness and impose stricter regulations than those faced by peers in the U.S. and U.K. Lawmakers are seeking a compromise to balance financial stability with UBS's global competitiveness.
The initial plan would have required UBS to hold 100% Common Equity Tier 1 (CET1) capital against its foreign subsidiaries, amounting to roughly $20 billion in additional CET1 capital. However, a revised proposal under consideration by a parliamentary committee could lower the CET1 requirement for foreign subsidiaries to a range of 70-80%. At the 80% threshold, UBS's additional capital burden would drop to approximately $15 billion. The most significant aspect of the compromise involves allowing UBS to use Additional Tier 1 (AT1) instruments to meet part of the capital gap. AT1s are a hybrid form of capital that convert to equity or are written down in a crisis, and are cheaper for the bank to issue than pure equity.
The use of AT1 bonds is seen as a key compromise. While the finance ministry previously rejected a proposal allowing AT1s to cover 50% of new capital demands, a renewed focus on robust Swiss reforms to AT1s, imposing early losses in a crisis, could pave the way for their increased use. If a December 2025 version of the compromise were adopted, allowing AT1s to cover up to 50% of the capital requirement, the actual new CET1 capital UBS would need could shrink to as little as $400 million. UBS itself has subtly steered the debate towards this solution, leveraging its position as a substantial player in the global AT1 market, with its debt accounting for about 7% of the $286 billion European market. The Swiss National Bank has also weighed in on the debate, although some regulatory experts express concern that partial backing for foreign units could pose risks to financial stability.
Lawmakers in the upper house's Economic Affairs and Taxation Committee are scheduled to meet in August to finalize a decision, which could then go to the full Council of States in September. UBS has expressed frustration with the government's initial unwillingness to negotiate directly and has privately warned that a failure to reach a favorable compromise could lead the bank to consider moving to a more accommodating jurisdiction. The outcome of these parliamentary discussions is crucial, as even with assurances, the final package could still be damaging to UBS's operations and competitive standing.
