The Parmeling government was aggressively seeking to keep the ratio at 100%.
UBS should be allowed to use cheaper Additional Tier 1 capital to make up the other 50% to achieve full capitalisation of its units abroad, said the economic affairs and taxation committee of the upper house of parliament, which was tasked with looking into banking regulations in the European country in the wake of the 2023 collapse of Credit Suisse.
“This is not a victory for UBS; it’s a solution that serves Switzerland,” said Committee President Erich Ettlin, a lawmaker with the Centre Party.
“Under the committee’s proposal, UBS should be able to roughly keep its current CET1 capital level, but the bank would need to hold more AT1 capital,” he added further.
AT1 debt is cheaper to hold than CET1 capital and has been designed to absorb losses during times of financial stress. However, lawmakers around the world regard the mechanism as less secure.
To strengthen the instrument, the parliamentary committee has proposed an introduction of an additional trigger at a level of around a 11% CET1 capital ratio.
“If the bank falls below that threshold, UBS would have to suspend payouts to investors as well as share buybacks. Bonus payments would need to be reduced unless the bank rebuilds its capital base within a certain time,” Ettlin said.
“The modifications would make AT1 capital more costly for the bank,” he continued.
Lawmakers, by considering several less costly compromise proposals, have tried to balance protecting taxpayers from a future banking crisis against the Swiss bank’s concerns that tougher capital requirements could undermine its competitiveness.
The Swiss government, however, wants UBS to hold about USD 20 billion in additional CET1 capital to bolster financial stability after its emergency takeover of Credit Suisse in 2023.
And this has set the Parmelin government on a collision course against the UBS, with the latter calling the requirement “excessive”, which would undermine its competitiveness and damage Switzerland’s banking sector.
The proposals for new banking regulations, which were passed by the committee by 10 votes to two, with one abstention, now have to be voted on in the upper house before being examined by the lower house committee and chamber.
Ettlin said the final decision on capital requirements could come by the end of this year, but 2027 is more likely.
However, Finance Minister Karin Keller-Sutter has expressed her disappointment over the whole development, stating the step was not in accordance with what the government wanted.
“It does not improve the situation, quite the opposite,” she said, noting that experts from the Swiss National Bank and market regulator FINMA also felt the committee’s proposal created legal uncertainty, apart from being impractical.
After UBS acquired Credit Suisse in a Swiss government-choreographed takeover, it was Keller-Sutter who pushed hard for tougher rules to be introduced to protect taxpayers and avert the risk of another bank unravelling.
Stating that some of the members in the parliamentary committee expressed views similar to her vision, Keller-Sutter said it was possible the new rules could be put to a public referendum in the future.