Switzerland Softens Proposed UBS Capital Rules but Keeps Key Demand

Switzerland Softens UBS Capital Rules But Maintains Major Demand for Foreign Units

Swiss Government Adjusts Capital Requirements for UBS Amid Ongoing Banking Reforms

By Dave Graham and Ariane Luthi

Background: UBS Acquisition and Regulatory Response

ZURICH, April 22 (Reuters) - The Swiss government on Wednesday granted UBS concessions on planned new capital rules but stuck to its key demand that the bank fully capitalise its foreign units in a banking bill that aims to prevent another Credit Suisse-style collapse.

The bill lowers the immediate capital requirement facing UBS and sets up a showdown in parliament between lawmakers adamant that stricter rules are needed to protect taxpayers and others who fear an excessive capital burden will hurt Swiss banking.

UBS acquired Credit Suisse in 2023 when its old rival unravelled after a string of financial losses and scandals, prompting the government to promise tougher rules to ensure there would be no repeat meltdown.

Key Provisions of the New Capital Rules

Increase in Core Capital Requirements

The new package of regulation increases UBS's Common Equity Tier 1 (CET1) core capital by about $20 billion, Switzerland's governing Federal Council said in a statement.

"The solution proposed by the Federal Council is more moderate than planned, due to the results of the consultation procedure," it said, referring to a consultation that took place on the basis of the government's tougher preliminary proposals.

The government said that if the new regulations had been applied from the start of 2026, the core capital shortfall would have been only around $9 billion because UBS exceeds current requirements.

Amortisation and Ordinance Implementation

The government stepped back from requiring full backing of CET1 capital for the value of deferred tax assets and software. Instead, it opted for a maximum three-year amortisation period for software, in line with European Union regulations.

These provisions are regulated by so-called ordinances which the government said would come into force in January 2027.

Foreign Units Capitalisation Demand

Under the proposed rules UBS should back its foreign units in full, rather than 60% as is required now, and do so only with CET1 capital, the government said, maintaining a demand it had previously floated and which UBS regards as excessive.

UBS fears that if the new rules are too strict, it could become a takeover target and may need to pursue contingency plans that include possibly moving its headquarters abroad, people familiar with the matter have told Reuters.

Lawmakers will be the final arbiters on this key rule and are expected to start debating it on May 4.

The government says stricter capital rules are necessary for financial stability given that UBS has a balance sheet about twice the size of the Swiss economy.

Parliamentary Showdown and Future Implications

Government's Position on Parliamentary Decisions

Potential Reassessment of Capital Rules

PARLIAMENTARY SHOWDOWN NEXT UP

Wary of concessions that parliament could make to UBS over the new regulations, the government threatened to revisit rules if parliament did not "sufficiently" implement its core demand on the capitalisation of the bank's foreign units.

In such a case, the Federal Council said it reserved the right to reassess capital rules for deferred tax assets.

How that would work in practice is unclear. Parliament can theoretically override such edicts by amending the underlying law, but that could take years.

Lawmakers' Concerns and Alternative Proposals

Concerned about the burden on UBS, lawmakers from four parties in December pitched a proposal that could allow it to partially back foreign subsidiaries with so-called Additional Tier 1 (AT1) bonds, which would lower the cost for the bank.

The government, however, opposes it, saying the loss-absorbing capacity of AT1 bonds was too limited.

Projected Impact on UBS's Capital Ratios

It calculated that once its measures were implemented, UBS's CET1 capital ratio would be around 15.5%, in line with the current capital ratios of its international competitors.

That amounted to a CET1 capital ratio increase of around 1.1 percentage points from the fourth quarter of 2025, it said.

(Reporting by Dave Graham and Ariane LuthiAdditional reporting by Oliver HirtEditing by Tomasz Janowski)