Swiss Lawmakers Weigh Balance of Banking Stability and Competition

Swiss lawmakers are set to draft new capital requirements for UBS that balance stability and competition concerns. The government has proposed that UBS hold an extra $20 billion in Common Equity Tier 1 (CET1) capital, but many fear this could put the bank at a disadvantage when competing against big US banks.

Lawmakers are expected to water down the proposal, with some suggesting a buffer of around 70% or even 50%. This would reduce the extra capital UBS must hold from $12 billion to zero. Fabio Regazzi, a Centre party lawmaker, said they don't want to put taxpayers' money at risk for a possible bank bailout, but also need to ensure the bank remains competitive.

UBS argues that holding too much CET1 capital would tie up funds needed for share buybacks and investments in AI. The bank's fees could rise, affecting the economy, and bonus payments might be lower, making it harder to attract talent. UBS Chair Colm Kelleher has warned of serious consequences for the Swiss economy if the government proposals are adopted.

Lawmakers may let UBS partly use Additional Tier 1 (AT1) capital to back its foreign units. AT1 debt is cheaper than CET1 and can absorb losses during crises, but is also less secure. The parliamentary committee will consider introducing a new regulatory trigger point that would require UBS to refrain from paying out investors if it dips below a minimum capital ratio.