Swiss finance minister criticises parliamentary step to soften UBS capital rules

Finance minister's criticism

Swiss Finance Minister Karin Keller-Sutter has criticised a parliamentary committee's decision to soften stricter capital rules proposed by the government for UBS, following the 2023 collapse of Credit Suisse. Keller-Sutter described the move as "a solution in favour of the bank and against taxpayers," and said strong lobbying had influenced lawmakers, as reported by The Banker.

Keller-Sutter, who has pushed for tougher rules to protect taxpayers and avert the risk of another bank unravelling, voiced disappointment at the committee's decision, saying "it does not improve the situation, quite the opposite," according to a report by Euronext Markets. She noted that experts from the Swiss National Bank and market regulator FINMA felt the committee's proposal created legal uncertainty and was impractical.

The committee's proposal

The Swiss government had proposed that UBS fully capitalise its foreign units using 100% Common Equity Tier 1 (CET1) capital, the highest quality form of bank capital, a step calculated to cost the lender about $20 billion, as reported by Euronext Markets. The parliamentary committee of the Swiss upper house passed an amended version stipulating that UBS could back the units with 50% in CET1 capital and use less expensive Additional Tier 1 (AT1) capital to cover the remaining 50%.

The committee issued its own statement saying the government proposal would unduly restrict UBS's competitiveness, and viewed its proposal as a compromise between the government's plan and the interests of the cantons, the economy, and the bank most affected, UBS.

UBS and banking association responses

UBS acknowledged the committee's proposal eased the burden it faced under incoming rules, but said it would still require the bank to hold about $13 billion in extra capital, which could be met by AT1, according to Euronext Markets. The Swiss Bankers Association rejected imposing stricter capital requirements but welcomed the greater latitude given to AT1 instruments under the amended plan.

Next steps

The committee's proposal must still be voted on by the floor of the upper house before being debated by the lower house. Keller-Sutter noted there had been disagreement in the committee, with some members closer to her vision, and said it was possible the new rules could be put to a public referendum in future, as reported by Euronext Markets.