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Although lawmakers in Berne have adjusted planned capital rules that the bank sector has welcomed, it remains worried that regulations will hit the country’s banks, particularly UBS, and threaten its competitive edge and that of Switzerland. The saga could even work to the benefit of US-based banks.
The Swiss government has conceded ground on proposed new capital
rules that have angered UBS – the country’s largest bank –
but it continues to demand that the Zurich-listed lender
fully capitalize its foreign units. A new banking bill intends to
prevent the kind of collapse that brought down Credit Suisse
three years ago. UBS bought Credit Suisse at the behest of
the government and central bank in March 2023.
(The picture below shows the Berne parliament.)
An amendment to the Banking Act has reduced the immediate
capital requirement facing UBS. Debate remains between lawmakers
who insist that stricter rules are needed to protect
taxpayers from a potential future bailout and others who worry
that excessively tough rules will blunt the competitiveness of
Swiss banks. UBS has criticized the
rule. A Reuters report in late October last year,
quoting unnamed sources, said UBS is so concerned about Swiss
capital rules that it might move its headquarters to the
US. In March, UBS announced that it had secured clearance to
convert its US bank, UBS Bank USA, to a nationally
chartered bank.
“Requiring foreign holdings to be fully backed by hard core
capital would put Switzerland at a regulatory disadvantage. At
the same time, viable solutions are available that strengthen
financial stability without undermining competitiveness. This is
in the interests of Switzerland, its economy and taxpayers,”
Marcel Rohner, president of the Swiss
Bankers Association, said in a statement.
Regulators in the Alpine state are keen to avoid a repeat of the
Credit Suisse saga that damaged the country”s image as a stable
financial jurisdiction. Switzerland now has only one universal
bank, making UBS “too big to fail,” to coin a phrase often
used in the aftermath of the 2008 financial crackup.
So far this year, shares in UBS have fallen by 14.6 per
cent.
Reiterating the kind of points made to this publication’s sister
news service, WealthBriefing, a
few weeks ago in Zurich, the SBA said: “The Federal
Council is ignoring the predominantly critical feedback from the
consultation process, particularly from the real economy and
around 16 cantons. These rightly point out that this maximalist
proposal and Switzerland’s unilateral approach will weaken the
financial center, hamper the supply of credit and make financial
services more expensive for businesses.”
“The SBA welcomes the fact that the Federal Council has moved
away from its extreme proposals in the Capital Adequacy
Ordinance. Although the new valuations for specific balance sheet
items such as software go beyond international standards, they
are now aligned with competing financial centers and are
therefore acceptable to the Swiss financial center. It is
positive that the vast majority of banks are now exempt from
further tightening measures,” it said.
From the SBA’s perspective, the Federal Council’s approach
regarding the capital adequacy requirements for foreign holdings
does not make Switzerland more stable, but instead leads to
Switzerland going it alone. Above all, this creates new
locational disadvantages, it said.
UBS comments
“UBS continues to strongly disagree with the proposed package,
which is extreme, lacks international alignment and disregards
concerns expressed by the majority of respondents to the
government’s consultations. If adopted, the proposed measures
would have far-reaching consequences for the Swiss economy,” the
bank said in a statement yesterday. “The materials published by
the Swiss government today contain assertions that we believe to
be misleading. Considering UBS has just received this
information, it is in the process of thoroughly evaluating all
documents and statements made during the Federal Council’s press
conference. UBS will provide additional comments at the latest
with its results for the first quarter of 2026, which will be
published on 29 April 2026.”
UBS said that under the new ordinance, UBS’s capitalized software
will be subject to an amortization schedule of no more than three
years for capital purposes, regardless of economic useful life.
In addition, prudential valuation adjustments will be revised,
resulting in higher capital deductions for assets and liabilities
that are subject to valuation uncertainty. The treatment of
deferred tax assets arising from temporary differences remains
unchanged and aligned with international regulation, the bank
said.
The bank said changes to prudential valuation adjustments will
become effective on January 1, 2027, while the changes to the
capital treatment of capitalized software must be put in force by
January 1, 2029. The amendments announced yesterday, once fully
implemented, are expected to remove about $4 billion of
net CET1 capital at the group (consolidated) level. This would
reduce the CET1 capital ratio at UBS Group by around 0.8
percentage points, UBS said.
Under the proposal relating to foreign participations that will
now proceed through the parliamentary process, investments in
foreign participations would be fully deducted from UBS’s
standalone CET1 capital. The proposal provides that the
amendments would be phased in over seven years, assuming no
delays during the parliamentary deliberations, starting with a 65
per cent deduction requirement in the first year and
increasing to 100 per cent by 5 percentage-point increments
each year. The full deduction of investments in foreign
subsidiaries would require UBS to hold additional CET1 capital of
around $20 billion, it said.
Shock absorber
The new package of regulation increases UBS’s Common Equity Tier
1 (CET1) core capital by about $20 billion, Switzerland’s
governing Federal Council said in a statement. (The ratio is a
measure of the shock absorber capital banks are required to hold
against adverse market moves.)
The SBA has argued that the crisis in Credit Suisse that led it
to being acquired by UBS in an emergency takeover in 2023 was a
liquidity problem, not one about insufficient capital.
In its statement yesterday, the SBA said it took a “particularly
critical view of the Federal Council’s decision to tighten
capital adequacy requirements for foreign holdings.”
“Switzerland already has strict capital requirements by
international standards. The proposed tightening contradicts both
the Basel Standards and international practice. Despite clear
criticism from the financial sector, large parts of the real
economy and a clear majority of the cantons, the Federal Council
is sticking to its controversial proposal. This will affect the
lending terms for bank customers and SMEs. At the same time, more
effective solutions are available,” it said.
The trade body said that the Federal Council’s decision on the
Capital Adequacy Ordinance showed it had taken account of certain
criticisms raised during the consultation process.
“Banks may continue to count certain balance sheet items, such as
proprietary software and deferred tax assets, towards their
Common Equity Tier 1 capital.
“The requirement to fully amortize software within three years at
the latest represents a clear tightening of the rules.
Switzerland is thus going beyond the current standard; however,
the tightening is aligned with competing financial centers and
therefore represents a viable solution for the Swiss financial
center,” the SBA said.
“The targeted improvements in the provision of information on
systemically important banks’ liquidity positions are sensible.
In keeping with the Swiss principle of proportionality, many
banks that do not pose a threat to systemic stability are now
exempt from further tightening,” the SBA continued.
UBS
reiterated its critique of the proposed rules in its annual
report, issued in March.