Swiss Finance Minister Karin Keller-Sutter voiced disappointment regarding a parliamentary committee's decision to reduce stricter capital rules proposed by the government for UBS following the 2023 collapse of Credit Suisse. Keller-Sutter stated that the committee's step was not in line with the government's objectives and would not improve the situation, citing concerns from experts at the Swiss National Bank and market regulator FINMA that the proposal created legal uncertainty and was impractical. The government had pushed for tougher rules to safeguard taxpayers and prevent future banking crises after UBS acquired its rival.
The committee proposed that UBS should back its foreign subsidiaries with 50% in Common Equity Tier 1 (CET1) capital, the highest quality form of bank capital, a significant reduction from the government's aim for 100% CET1 backing. Under the committee's plan, UBS could maintain its current CET1 levels and instead hold more Additional Tier 1 (AT1) capital, which is cheaper, to support foreign units. The committee, voting 10-2 with one abstention, also suggested that if UBS falls below a certain CET1 capital ratio (around 11%), it would be barred from paying dividends, making share buybacks, or paying coupons on AT1 bonds, and bonus pools would be reduced.
This decision marks a setback for Keller-Sutter, who has strongly advocated for increased capital requirements, approximately $20 billion, to ensure UBS's foreign operations do not jeopardize its domestic entity. UBS has argued that the government's initial measure would make it uncompetitive. Analysts from Jefferies, Joseph Dickerson and Theo Massing, noted that the committee's "materially softer approach" would provide UBS with more flexibility in meeting the demands for backing foreign subsidiaries. Committee chairman Erich Ettlin stated that the solution would "serve Switzerland" and was not a victory for UBS, as the AT1 measures would still be expensive for the bank.
The committee's proposal is an interim step in a lengthy legislative process. It must first be voted on by the upper house and then debated by the lower house, where UBS could encounter greater resistance. The Social Democrats, the second-largest party in parliament, have already criticized the committee's stance, signaling a potentially tougher battle ahead. The final decision on these capital requirements is not expected until at least late 2027, and Keller-Sutter also mentioned the possibility of a public referendum on the new rules.
