More than three years after Credit Suisse collapsed, Switzerland's government wants UBS to hold a lot more money in reserve. This week, the country's lawmakers get their first official chance to respond.
On Tuesday, the upper chamber's economic and tax panel in Bern convenes to discuss the government's proposed capital regulations for UBS. Every option on the table so far points in the same direction: a softer version of the original plan.
Under the proposal, UBS would need domestic equity capital matching the entire book value of its overseas subsidiaries. That means the bank would need to set aside roughly $20 billion more in the highest quality equity capital, known as CET1. The finance ministry first floated the measure in 2024, and UBS has lobbied strongly against it since.
The idea came from a painful lesson. Following Credit Suisse's downfall, the gap between the capital set aside for foreign subsidiaries and the sum required to offload or liquidate them during a crisis was pinpointed as a contributor to the collapse. Swiss authorities want the entire book value of foreign units deducted from capital, which would make it easier to sell or wind down those operations in an emergency.
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The failure reshaped Switzerland's banking landscape, leaving UBS as the country's largest bank and the focus of systemic-risk concerns. The government's plan is designed to prevent a repeat of that crisis.
UBS has fiercely opposed these "extreme" measures, contending that they would erode its competitive edge and hurt Switzerland's economic health. With worries that UBS might someday relocate away from Switzerland, its stance has found some support among legislators.
Now the committee is weighing a middle path. Rather than forcing UBS to match the complete book value of its foreign subsidiaries with equity, lawmakers are weighing a requirement of only 80% or 75%. Another idea would tie the extra capital to how big UBS's cross-border business is compared with Switzerland's economy, with larger operations triggering higher demands.
A plan favored by UBS allies in the legislature, mostly from the center-right, would permit the bank to cover up to 50% of the requirement using bonds rather than equity. The ideas under discussion vary from just lowering the extra capital UBS has to come up with to the bond-based option.
No clear majority has formed in the committee yet. The proposal may well be softened, but committee members largely agree that UBS should still hold more capital than it does today. If lawmakers cannot reach a deal, they can push the decision to their next scheduled meeting on Aug. 31.
The stakes are high for both sides. UBS argues that the additional buffer would tie up billions that could otherwise be returned to shareholders or invested in growth. Supporters of the stricter rules counter that the collapse of Credit Suisse demonstrated the systemic risk posed by Switzerland's largest bank, and that a stronger cushion is essential to protect taxpayers from a future bailout. The outcome of this debate will likely shape the country's financial regulation for years to come.
This committee will deliver lawmakers' first verdict on the executive branch's proposal. The proposal stems from the Credit Suisse failure of more than three years ago, and this recommendation is merely an early milestone in a long parliamentary procedure slated to run into next year.
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