The Swiss government on Wednesday granted UBS concessions on planned new capital rules but stuck to its key demand that the bank fully capitalise its foreign units in a banking bill that aims to prevent another Credit Suisse-style collapse.
The bill lowers the immediate capital requirement facing UBS and sets up a showdown in parliament between MPs adamant that stricter rules are needed to protect taxpayers and others who fear an excessive capital burden will hurt Swiss banking.
UBS acquired Credit Suisse in 2023 when its old rival unravelled after a string of financial losses and scandals, prompting the government to promise tougher rules to ensure there would be no repeat meltdown.
The new package of regulation increases UBS’s Common Equity Tier 1 (CET1) core capital by about $20bn, Switzerland’s governing Federal Council said in a statement.
“The solution proposed by the Federal Council is more moderate than planned, due to the results of the consultation procedure,” it said, referring to a consultation that took place on the basis of the government’s tougher preliminary proposals.
The government said that if the new regulations had been applied from the start of 2026, the core capital shortfall would have been only about $9bn because UBS exceeds current requirements.
The government stepped back from requiring full backing of CET1 capital for the value of deferred tax assets and software. Instead, it opted for a maximum three-year amortisation period for software, in line with EU regulations.
These provisions are regulated by so-called ordinances which the government said would come into force in January 2027.
Under the proposed rules UBS should back its foreign units in full, rather than 60% as is required now, and do so only with CET1 capital, the government said, maintaining a demand it had previously floated and which UBS regards as excessive.
UBS fears that if the new rules are too strict, it could become a takeover target and may need to pursue contingency plans that include possibly moving its headquarters abroad, people familiar with the matter have told Reuters.
MPs will be the final arbiters on this key rule and are expected to start debating it on May 4.
The government says stricter capital rules are necessary for financial stability given that UBS has a balance sheet about twice the size of the Swiss economy.
Wary of concessions that parliament could make to UBS over the new regulations, the government threatened to revisit rules if parliament did not “sufficiently” implement its core demand on the capitalisation of the bank’s foreign units.
In such a case, the Federal Council said, it reserved the right to reassess capital rules for deferred tax assets.
How that would work in practice is unclear. Parliament can theoretically override such edicts by amending the underlying law, but that could take years.
Concerned about the burden on UBS, MPs from four parties in December pitched a proposal that could allow it to partially back foreign subsidiaries with so-called Additional Tier 1 (AT1) bonds, which would lower the cost for the bank.
The government, however, opposes it, saying the loss-absorbing capacity of AT1 bonds was too limited.
It calculated that once its measures were implemented, UBS’s CET1 capital ratio would be about 15.5%, in line with the current capital ratios of its international competitors.
That amounted to a CET1 capital ratio increase of about 1.1 percentage points from the fourth quarter of 2025, it said.
Reuters
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