Switzerland Proposes Tough New Capital Rules for UBS

The Swiss government has proposed tougher rules for UBS following its acquisition of Credit Suisse, potentially increasing its core capital by $26 billion and confirming some of the bank’s worst fears about the upcoming new regulations.

The main proposal, which will take the bank six to eight years to prepare for once it becomes law, requires UBS to fully capitalize its foreign units, in line with the expectations of many analysts, regulators, and executives.

This could give the bank until the mid-2030s to comply, according to Reuters.

Under the Swiss proposals, UBS’s Common Equity Tier 1 (CET1) capital ratio could be somewhat higher than that of its global competitors, according to the government. She added that UBS’s 14.3% Common Equity Tier 1 capital ratio could rise to 17%, surpassing competitors such as JPMorgan (15.8%), Morgan Stanley (15.7%), and Goldman Sachs (15.3%).

The government announced that its proposed capital requirements would allow UBS to reduce its holdings of Additional Tier 1 (AT1) bonds by $8 billion. “Today, UBS only has to capitalize 60% of its foreign units and can cover part of the capital with AT1 debt.”

In response, the bank criticized the capital plan, describing it as “extreme” and in violation of international rules.

UBS expressed its strong opposition to the “significant increase” in the proposed capital requirements, which it stated would require it to hold approximately $24 billion more in Common Equity Tier 1 capital. UBS executives say the additional capital burden will put the Zurich-based bank at a disadvantage against its competitors and undermine Switzerland’s competitiveness as a financial center.