Swiss lawmakers are preparing to debate new capital requirements for UBS as they try to protect the country from another banking crisis without weakening its largest bank. The discussion follows UBS’s emergency takeover of Credit Suisse in 2023 and centres on whether stricter financial safeguards could make the bank less competitive internationally.
Parliament Searches for a Political Middle Ground
The Swiss government wants UBS to hold approximately $20 billion in additional Common Equity Tier 1 capital, commonly known as CET1. This high quality capital is intended to absorb losses and reduce the chance that taxpayers would have to support the bank during another financial emergency.
However, several lawmakers believe the proposed requirement could place too much pressure on UBS and discourage investors. Fabio Regazzi, a lawmaker with the Centre party, said officials “don’t want to put taxpayers’ money at risk” while also avoiding unnecessary damage to the bank.
“I’m confident we’ll find a compromise,” Regazzi added. His party is expected to play an important role in forming a parliamentary majority.
August Meetings Could Shape the Final Rules
The upper house’s Economic Affairs and Taxation Committee is scheduled to discuss the proposal during meetings on August 10, 11 and 31.
One of the main questions is how much CET1 capital UBS should use to support its foreign subsidiaries. The government wants those operations to be backed at 100 percent, but lawmakers are considering requirements of approximately 70 percent, 80 percent or even 50 percent.
Depending on the percentage selected, the additional capital buffer could fall from around $12 billion to nothing. The committee hopes to reach a decision in August, allowing the proposal to move to the upper house in September. Final rules could potentially be approved before the end of 2026.
Credit Suisse Collapse Drives Stability Concerns
The proposed reforms were developed after Credit Suisse collapsed and was taken over by UBS in 2023. The crisis raised concerns about whether Switzerland’s existing regulations were strong enough to manage the failure of a major global bank.
The Swiss National Bank has warned that partially backing UBS’s foreign subsidiaries could force the same capital to cover risks at both the parent company and its international units. Regulators argue that this could weaken financial stability, especially because UBS’s balance sheet is larger than the Swiss economy.
Under the government’s original plan, UBS would have a seven year transition period to meet the new capital requirements. The bank’s future CET1 ratio could rise to approximately 15.5 percent, which officials say would be comparable with other major international banks.
UBS Warns About Costs and Global Competition
UBS argues that holding an additional $20 billion in CET1 capital would place it at a disadvantage against large American banks. The company could have less money available for share buybacks, artificial intelligence investments and expansion into important markets.
People familiar with the bank’s position also told Reuters that stricter requirements could lead to higher fees for Swiss customers and smaller employee bonuses, making it more difficult for UBS to attract and retain skilled workers.
UBS Chair Colm Kelleher previously described the government’s plan as “extreme proposals” and said the bank had a responsibility to evaluate measures for addressing their possible effects. UBS has also warned that the reforms could have serious consequences for the wider Swiss economy.
AT1 Capital Emerges as a Possible Solution
One possible compromise would allow UBS to use Additional Tier 1 capital, known as AT1, alongside CET1 capital when supporting its foreign subsidiaries. AT1 instruments are less expensive for banks to hold and are designed to absorb losses during a financial crisis, but they are considered less secure than CET1 capital.
Lawmakers may also introduce a higher regulatory trigger that would prevent UBS from making payments to investors if its capital ratio fell below a required level. Supporters believe this could strengthen AT1 instruments and create a path toward fully capitalising UBS’s foreign operations without placing the entire burden on CET1 capital.
A Decision With Global Consequences
The final UBS rules will determine how Switzerland responds to the lessons of the Credit Suisse collapse. Lawmakers must decide how much protection taxpayers and the financial system require while ensuring UBS can continue competing with the world’s largest banks. A compromise involving both CET1 and AT1 capital may offer a solution, but the political debate is likely to remain difficult as parliament moves toward a possible decision later in 2026.
