Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
UBS may have been handed an early win in its battle to moderate stringent new capital requirements imposed by the Swiss government. Who to thank? The pragmatic and slow-moving Swiss political system.
The fierce debate between the Swiss lender and the government over how much more money it should hold in reserve domestically for its overseas branches has been raging for months. By Swiss standards, it has all become quite emotional.
Many Swiss citizens remain rightfully angered by the collapse of Credit Suisse in 2023. And the government believes it is imperative to prevent a recurrence of the collapse of a systemically important bank. Likewise market regulator Finma, now on the defensive after being heavily criticised for its handling of Credit Suisse. This has put UBS in a difficult position. Even though it was encouraged to take part in a state-sponsored rescue of its rival, it is now criticised for pushing back at the consequent regulatory cost — the new capital rules.
But there is a very Swiss resolution coming into sight where compromises may be eased in over time. It is important to note that the capital requirements are just one part of a much broader reform proposal. This “Too Big to Fail” package of measures, unveiled in June, is aimed at strengthening the Swiss financial centre and reducing future risks to the state, taxpayers and economy.
At present, the government has proposed forcing UBS to raise its capital buffers on foreign subsidiaries by up to $26bn. The reforms would become law at the start of 2028 at the earliest, while UBS would be given a transition period of “at least six to eight years” to implement the changes.
The Swiss government’s original plan was to issue this decision directly via so called federal ordinance, which can be done without parliamentary approval. Then earlier this year the finance ministry decided the issue was so important that it would instead make a proposal and then hand over the ultimate decision to parliament.
That meant a staggered, piecemeal approach. Some of the TBTF reforms — such as liquidity requirements — were to be implemented via federal ordinance. Others, such as the capital rules and extra powers for the regulator, will work their way through parliament.
But perhaps not any more. In late June, the Swiss lower house economic committee passed a motion instructing the government that the measures should be considered altogether by parliament. The upper house’s sister economic committee may do the same, possibly at its August meeting. Members on both committees are worried about unintended consequences given the complexity and interdependency of the proposed measures. If the upper house committee approves the halting of the government’s ordinance level measures until it has a full picture, a motion to do that goes to the upper and lower chambers of parliament as soon as September. If passed, it becomes binding for the government.
This scenario is not a done deal and it is too soon to really know how this may affect timing. But if the package is considered as a whole, that is likely to be good for UBS for two key reasons. First, the bank gets more breathing room. The longer it takes, the less emotion there is in a decision that will have long-lasting effects on the Swiss banking industry — and economy.
People have short memories. Credit Suisse’s takeover is looking further away in the rear-view mirror while headlines featuring US President Donald Trump, war and trade tariffs take over. Lawmakers may not feel as much pressure to crack down hard on the country’s biggest and most important bank at such a volatile time.
The second is it may provide greater latitude for UBS to lobby lawmakers to water down parts of the original proposal. “Politically, it may be easier to find a compromise with a full package because there are more elements to tweak and amend. It is no longer just headlines and focus around the capital rules,” said one person familiar with the situation. That approach also fits, of course, with Switzerland’s culture of consultation, checks and consensus.
Whether compromise is a good thing in this case depends on your perspective. For UBS, it still leaves uncertainty hanging over its share price — down 3 per cent this year versus a 35 per cent rise by the European bank sector over the same period. But what’s a little more uncertainty, especially if it ultimately leads to a better outcome for the bank?
