UBS, the bank that absorbed Credit Suisse following the largest bank bailout in Swiss history, is once again in the spotlight as authorities attempt to shield the financial system from the risk of a new crash. The Swiss parliament is considering changes to capital adequacy rules for the banking giant, seeking a delicate balance between protecting taxpayers from a new bailout and maintaining the international competitiveness of the country's largest bank. Decisions made in the coming months are considered crucial for the future of UBS and the stability of the European banking system.
In search of a compromise
In particular, Swiss lawmakers are expected to seek a compromise between protecting taxpayers from a new banking crisis and maintaining the competitiveness of UBS when they convene next month to shape the new capital rules for the country's largest bank. According to parliamentary sources cited by Reuters, the Swiss parliament is expected to soften the government proposal, which provides for additional Common Equity Tier 1 (CET1) capital of approximately $20 billion, as several lawmakers believe that such a large and permanent capital burden could discourage the bank's investors.
Aiming for protection without harming competitiveness
"We certainly do not want taxpayers' money placed at risk for a potential bank bailout, but nor should we unduly weaken UBS," said the Centre party lawmaker Fabio Regazzi, whose faction is expected to play a decisive role in shaping the parliamentary majority. "I am confident that we will find a compromise solution," he added, emphasizing that final rules must take into account both the financial stability of Switzerland and the competitiveness of UBS. The new rules are a response to the 2023 collapse of Credit Suisse and its acquisition by UBS, while their final passage is not expected before Parliament's session in December. However, the tone of the debate is expected to be set by the Council of States' Committee for Economic Affairs and Taxes, which is considered particularly business friendly.
From 20 billion down to 12 billion or even zero
During its meetings on August 10, 11, and 31, the committee will consider the possibility of reducing the government requirement under which UBS would have to cover 100% of its foreign subsidiaries with CET1 capital. Alternative coverage ratios of 70%, 80%, or even 50% are on the table. Such a decision could reduce the bank's additional capital requirements, following a transitional period, from approximately $12 billion down to zero. The committee aims to reach a decision in August so that the relevant bill can be introduced in the Upper House in September and the final rules approved by the end of 2026. Nevertheless, discussions remain open and there is not yet a clear majority in favor of any specific legislative proposal.
Warnings from the central bank
Swiss authorities insist that any solution falling short of full coverage of foreign subsidiaries with CET1 capital may increase risks to financial stability, as the UBS balance sheet exceeds the size of the Swiss economy. The Swiss National Bank (SNB) recently warned that partial coverage means a portion of capital would simultaneously have to cover risks of both the parent company and its foreign subsidiaries, which contradicts the principles of financial safety. Similar reservations have been expressed by other banking supervision experts, a fact that may reinforce arguments in favor of stricter capital requirements.
UBS warns of impacts on investments and dividends
UBS argues that the obligation to hold an additional $20 billion in CET1 capital would place it at a disadvantage compared to major US banks. According to sources familiar with the bank's strategy, such a large capital cushion would limit its ability to repurchase shares, invest in artificial intelligence, and fund its international expansion. Furthermore, it could lead to higher fees for clients in Switzerland, negatively affecting the economy, as well as lower executive bonuses, making it harder to attract and retain qualified personnel. UBS referred to its previous statement, in which it characterized government proposals as outside international standards and warned that they could have serious repercussions for the Swiss economy. UBS Chairman Colm Kelleher stated to shareholders in April that the bank has a duty to evaluate appropriate measures to address the negative consequences of these "extreme proposals."
AT1 bonds as a potential compromise
Lawmakers from most parties recognize UBS's concerns and are seeking a solution that will harm neither the financial sector nor the country's economy, which is already facing uncertainty due to US tariffs. One of the leading compromise proposals is allowing UBS to partially use Additional Tier 1 (AT1) bonds to cover the capital needs of its foreign subsidiaries. AT1 bonds are cheaper than CET1 capital and are designed to absorb losses during crises, although they are considered less secure. The parliamentary committee is also examining the introduction of a higher regulatory threshold, which would require UBS to suspend payments to investors if its capital adequacy ratio falls below a specified level, thereby enhancing the loss-absorption capacity of AT1 securities. Despite reservations from several experts over whether AT1 bonds can support a bank before it enters resolution, several lawmakers view them as the most likely compromise solution to achieve full capital coverage of UBS's international operations without imposing the full burden of CET1 capital.
www.bankingnews.gr
Σχόλια αναγνωστών