Swiss Committee Softens UBS Capital Rules in Setback for Government

A Swiss parliamentary committee ruled on Monday that UBS should only need to back its foreign subsidiaries with 50% Common Equity Tier 1 capital, the strongest form of bank capital, rather than the full 100% backing the government had pushed for. The economic affairs and taxation committee of parliament’s upper house made the decision as part of its broader review of banking rules following the collapse of Credit Suisse.

Cheaper Capital Option Allowed to Fill the Gap

Under the committee’s plan, UBS could use lower cost Additional Tier 1 capital to cover the remaining half of the capitalization requirement for its overseas units. Committee President Erich Ettlin said the proposal is meant to serve Switzerland’s interests rather than hand UBS an easy win, noting the bank would largely maintain its current CET1 levels while holding more AT1 capital instead. AT1 debt is less expensive for banks to hold and absorbs losses during periods of financial stress, though regulators consider it a weaker safeguard than CET1.

New Safety Trigger Added to Toughen the Rules

To offset the reduced CET1 demand, the committee proposed a new trigger point at roughly an 11% CET1 capital ratio. Should UBS fall below that level, the bank would be required to halt investor payouts and share buybacks, and reduce bonus payments unless it rebuilds its capital position within a set timeframe. Ettlin noted these added conditions would make AT1 capital more expensive for the bank to maintain.

Stability Concerns Weighed Against Bank Competitiveness

Lawmakers have been working to balance protecting taxpayers from future banking failures with concerns that stricter capital rules could weaken UBS’s global competitiveness. The Swiss government has pushed for roughly $20 billion in additional CET1 capital following UBS’s emergency acquisition of Credit Suisse in 2023, a demand UBS has called excessive and damaging to its position and to Switzerland’s banking industry overall.

Next Steps in the Legislative Process

The committee approved its proposal by a vote of 10 to 2, with one abstention. The measure must still pass through the upper house before moving to the lower house’s committee and full chamber, where UBS may encounter stronger opposition. Ettlin said a final decision on capital requirements is unlikely before the end of this year, with 2027 seen as a more probable timeline.