UBS Faces Tougher Capital Rules as SNB Backs Government Reforms

The Swiss National Bank (SNB) is reaffirming its support for the government's banking reform proposals, which aim to make UBS hold more capital. SNB Vice Chairman Antoine Martin emphasized that the increased concentration in the banking sector following UBS's takeover of Credit Suisse in 2023 has made stronger rules urgent.

Martin noted that the crisis at Credit Suisse revealed weaknesses in the current regulatory framework, particularly in capital requirements and collateral preparation. He stated that it is crucial for Switzerland to implement 'too big to fail' regulations and address these weaknesses, given the increased concentration and size of the Swiss banking sector relative to GDP.

The government wants UBS to fully back its foreign subsidiaries with Common Equity Tier 1 (CET1) capital to prevent another banking crisis and protect taxpayers. However, UBS has argued that this proposal would require it to hold about $20 billion in additional CET1 core capital, which is extreme and would undermine its competitiveness.

The SNB's Martin believes that the overhaul is necessary due to the size of UBS, which now holds roughly a quarter of the Swiss deposit and loan market. He emphasized that implementing the proposed 'too big to fail' measures, including full backing of foreign participations with 'hard capital,' would make the Swiss financial market more resilient.