The battle over how much capital UBS should hold is intensifying as Switzerland moves toward a critical stage in its post-Credit Suisse banking reforms.
UBS Chief Executive Sergio Ermotti warned against imposing what the bank considers excessively restrictive capital requirements ahead of a parliamentary vote on the country’s proposed banking reforms.
The Swiss government’s framework would require systemically important banks to provide substantially stronger capital backing for foreign subsidiaries. The underlying proposal would ultimately require the carrying value of foreign subsidiaries to be fully deducted from the parent bank’s Common Equity Tier 1 capital.
The changes could require UBS to hold roughly $20 billion in additional capital.
Ermotti has argued that a full CET1 requirement would impose excessive costs on the bank and potentially weaken its international competitiveness. A parliamentary committee has discussed alternatives that would allow part of the requirement to be satisfied with Additional Tier 1 capital.
The debate is a direct consequence of the 2023 Credit Suisse crisis and its emergency takeover by UBS.
Swiss authorities are attempting to reduce the possibility that losses at foreign subsidiaries could undermine capital available to the Swiss parent company during a future crisis. The government’s original proposal calls for the stronger requirements to be phased in over seven years.
For investors, the final structure matters because higher capital requirements could affect UBS’s capital returns, profitability and ability to compete internationally.
The next significant signal will come from Switzerland’s legislative process: not simply whether capital rules tighten, but how much flexibility lawmakers give UBS over the composition of that additional capital.
