UBS capital rules face further Swiss parliamentary hurdle

Swiss Lawmakers Debate Stricter UBS Capital Rules After Credit Suisse Collapse

By John Revill

Swiss Parliament Considers New Banking Legislation for UBS

ZURICH, Sept 16 (Reuters) - A group of Swiss lawmakers is supporting a motion to defer to the government on major new banking rules for UBS ahead of a vote on Thursday in the upper house of parliament on a compromise thrashed out last month on the draft legislation.

Background: Credit Suisse Collapse and UBS Acquisition

The compromise would impose a lower capital burden on UBS than the one sought by Switzerland's governing Federal Council as part of measures to strengthen the country's banks after the 2023 collapse of Credit Suisse, which UBS then acquired.

UBS Concerns Over Government Proposals

UBS says the government plan to make it fully back its foreign units with Common Equity Tier 1 capital is excessive and will put it at a disadvantage to international rivals.

Government’s Capital Requirements for UBS

The government says its full set of proposals for the banking overhaul would require Switzerland's last remaining global bank to hold an extra $20 billion in CET1 capital.

Parliamentary Compromise on Capital Rules

Last month, an upper house committee passed a compromise that could let UBS use $13 billion in so-called Additional Tier 1 capital to cover its foreign units.

Political Motions and Reactions

Andrea Caroni’s Motion to Return Legislation to Federal Council

Federal lawmaker Andrea Caroni of Switzerland's centre-right Liberals, or FDP, introduced a motion on Monday for parliament to return the banking legislation to the Federal Council.

"The Federal Council is the right body to decide on capital requirements," Caroni told Reuters. "I have had support from many of my colleagues and I'm hopeful the motion will pass.

"The situation is very fluid at the moment," he said.

Potential Impact of the Motion

If successful, the motion would also need to be backed by the lower house of parliament, but it could allow the Federal Council to directly introduce the stricter capital requirements that Swiss Finance Minister Karin Keller-Sutter wants for UBS.

Keller-Sutter’s Argument for Stricter Rules

Keller-Sutter, an FDP member, argues the stricter rules are necessary to ensure taxpayers are not on the hook for any future banking collapses following the Credit Suisse meltdown.

Uncertainty and Political Divisions

Upper House Vote and FDP Divisions

It is not clear whether Caroni's motion, which is due to be voted on alongside the AT1 compromise passed by the parliamentary committee, will command a majority in Switzerland's 46-member upper house. The FDP is not united on how best to overhaul the rules for UBS.

Centre Party and Social Democrats’ Positions

Fabio Regazzi, a member of the Centre party, the biggest parliamentary group in the upper house, said several potential outcomes are still possible.  

The left-leaning Social Democrats meanwhile have said they will launch a referendum campaign if parliament decides to water down the government's proposal for UBS to back its foreign subsidiaries with 100% CET1 capital.

(Reporting by John Revill and Dave Graham; Editing by Alexander Smith and Tomasz Janowski)