The Swiss government’s impending release of recommendations for regulating banks deemed “too big to fail” marks a crucial juncture for UBS, Switzerland’s largest bank. Following its rescue of Credit Suisse a year ago, UBS has awaited clarity on how authorities will mitigate the risk of another major bank failure within Switzerland.
Expected to span several hundred pages, the forthcoming report will likely focus on capital requirements, potentially necessitating UBS to bolster its reserves by tens of billions of dollars to guard against a scenario akin to the Credit Suisse crisis. Stefan Legge, an economist at the University of St. Gallen, emphasized UBS’s critical role in the Swiss economy, noting that the country cannot afford to let it fail due to its substantial balance sheet, which is double the size of Switzerland’s annual economic output.
The Swiss lower house of parliament has previously advocated for systemically relevant banks to maintain a leverage ratio of 15% of assets, significantly higher than requirements in other jurisdictions like the European Union, the United States, and Britain. This would necessitate UBS to raise well over $100 billion in additional equity, a formidable challenge according to Andreas Ita from consultancy Orbit36. While such stringent terms are unlikely to be imposed in full, the looming prospect has prompted UBS to embark on an extensive lobbying effort to influence policymakers.
UBS’s lobbying campaign underscores the bank’s concerns and the importance of regulatory clarity for its operations. However, Finance Minister Karin Keller-Sutter has cautioned against excessive regulation that could hinder Switzerland’s competitiveness in the global financial landscape. She emphasized the need to strike a balance between bolstering financial stability and maintaining Switzerland’s position as a leading financial hub.
UBS has voiced its opposition to overly stringent capital requirements, warning that they could lead to higher costs for consumers. Colm Kelleher, UBS chair, highlighted the potential adverse impact on shareholders and customers if excessive capital regulations were implemented.
While significant regulatory changes are not expected immediately, the impending recommendations will set the stage for discussions in parliament and consultations with stakeholders. Ultimately, policymakers face the challenge of crafting regulations that enhance financial stability without stifling the competitiveness of Swiss banks.
Despite the complexities involved, stakeholders recognize the urgency of addressing regulatory concerns surrounding UBS and other systemically important banks. As Legge noted, hope alone is not a strategy, underscoring the need for proactive measures to safeguard the stability of Switzerland’s financial system.