Lex UBS: Council of States postpones decision

Context

In breve

• Council of States: debate on systemic banks project
• Intervention by Karin Keller-Sutter scheduled for Wednesday
• Objective: cover foreign subsidiaries with own capital
• Estimated cost for UBS equal to 20 billion francs

Key facts

• Institution: Council of States
• Minister: Karin Keller-Sutter
• Government cost: 20 billion francs
• Proposed commission coverage: 50% CET1 and 50% AT1
• Current rule: 45% core capital and 17% AT1 bonds
• Ticino contribution to GDP: 7%
• Ticino tax contribution: 10%
• Additional AT1 capital for UBS: 13 billion francs

More than three hours of debate this morning in the Council of States were not enough to finish examining the government project aimed at strengthening systemic banks, particularly UBS, in case of difficulties. The debate will continue next Wednesday with the position of the finance minister, Karin Keller-Sutter. The Federal Council hopes that systemic banks will fully cover their foreign subsidiaries with own capital, in order to avoid a repeat of a crisis similar to that of Credit Suisse in 2023. This measure should entail an estimated outlay of 20 billion francs for UBS.

The position of the preparatory committee

The preparatory committee judged the government's solution too burdensome for UBS, considering that it could prejudice the institute's competitiveness internationally. For this reason a compromise solution was presented that envisages coverage of foreign subsidiaries for 50% with first-class core capital CET1 and for 50% with AT1 Additional Tier 1 bonds. Currently the regulation provides for a rule of 45% core capital combined with 17% in AT1 bonds. AT1 bonds are high-yield securities convertible into own capital or written down in case of serious financial difficulties, as happened in the case of Credit Suisse, a situation that has generated a legal dispute still pending before the Federal Tribunal. According to the committee's proposal, such bonds should contribute significantly to financial stabilization already in an early phase of the crisis.

During the opening debate, the compromise proposal was strongly contested by several political parties, in particular by the left and the Centre. The main fear is that the measure would be insufficient to address a large-scale financial crisis, leaving open the risk that taxpayers and the State would have to intervene to rescue the banks, as already happened in the past both for UBS and for Credit Suisse. Among the supporters of the compromise are various parliamentarians who highlight the need to balance the stability of the financial centre with the global competitiveness of the bank, avoiding negative repercussions on the real economy and on access to credit for Swiss businesses and families.

Operational details

A balance between stability and competitiveness

During today's session in the chamber, several speakers advocated for the solution put forward by the parliamentary commission. Tiana Moser of the Zurich Socialist Party described the measure as a balanced tightening and a typical Swiss compromise, stressing that the financial centre must certainly increase its resilience to crises, but that at the same time a major bank must be able to maintain its competitiveness on international markets. Similar considerations were expressed by Ticino centre senator Fabio Regazzi, who acted both as a representative of Ticino and as president of the Swiss Union of Arts and Trades USAM. For the Locarno entrepreneur, an excessive regulatory tightening such as that desired by the Federal Council risks weighing excessively on the financial centre, with the concrete danger that UBS would pass these costs on to local companies that need financing and credit on sustainable terms, as well as to households.

Economic impact on Ticino Canton and the sector

Fabio Regazzi highlighted that the insurance and banking sector contributes 7% of Ticino's GDP and generates over 10% of the taxes paid to the canton of Ticino. For this reason, according to the senator, it is indispensable to adopt a balanced regulatory framework that favours the bank's resilience without penalising its commercial competitiveness. Along the same line, councillor Thierry Burkart of the PLR argues that, applying the commission's solution, UBS should constitute an additional 13 billion francs of AT1 capital. The proposal of the parliamentary majority aligns with international realities, and the use of AT1 instruments represents a widely tested and well‑known tool for sector operators. Moreover, many speakers have stressed that the government's proposal is punitive towards UBS, as it does not adequately recognise the role played by the institution in 2023 when, by acquiring Credit Suisse, it avoided a systemic crisis on global financial markets.

Position of the parliamentary minority

Of opposite view is the strong minority led by Peter Hegglin, which maintains that foreign holdings must be covered by 90% of top‑tier core capital. This demand is directly based on the shortcomings and lessons learned during the Credit Suisse crisis. According to the proponents of this stricter line, a high proportion of primary capital would send an unequivocal signal of stability, security and reliability of the entire Swiss financial centre, drastically reducing the likelihood of future public bail‑out interventions at the expense of the national community.

Useful tools to protect your net income

To reduce FX leakage, compare CHF-EUR exchange options and banks for cross-border workers.

Key points

Future scenarios and banking risk management

The parliamentary debate in the Council of States represents a crucial step in the legislative process aimed at redefining capital requirements for systemically important institutions in Switzerland. With the continuation of work scheduled for next week and the expected intervention of Finance Minister Karin Keller-Swiss, Parliament is called upon to resolve the issues concerning the ratio between primary own funds and convertible debt instruments such as AT1 bonds. Economic operators, businesses, and Swiss citizens are closely monitoring the evolution of the regulatory framework, assessing the repercussions that future decisions by Bern could have on access to credit and the costs of financial services provided by the major Swiss banks. The definition of rigorous but sustainable rules constitutes the fundamental pillar to prevent systemic turmoil and safeguard the country's economic stability.

Procedures and financial planning tools

For professionals, businesses, and residents wishing to monitor the evolution of the labor market, operating costs, and wealth management in Switzerland, it is essential to rely on updated analysis and calculation tools. Personal and corporate financial planning requires a careful assessment of macroeconomic factors, including interest rates, taxation, and income trends within the national economic context. To delve deeper into your personal financial situation, calculate your net income, or analyze the impact of taxes on your budget, access the salary and tax calculator.

Source: tio.ch