Too big to fail: Council of States discusses UBS rules

Context

In brief

• Discussion scheduled within the Council of States
• FDP proposal to send the issue back to the Federal Council
• Initiative put forward by Andrea Caroni (FDP/AR)
• Support from the FDP group and favorable intentions from the Centre

Key facts

What: Too-big-to-fail regulation Where: Council of States When: Thursday (discussion scheduled) Who: Andrea Caroni and FDP councillors Institution involved: UBS

Regulation of banking institutions defined as too big to fail is returning to the center of institutional attention at the federal level. According to the political agenda, the issue regarding the equity capital that UBS will have to hold was scheduled to be discussed on Thursday within the Council of States. However, the handling of the matter could undergo substantial changes following the position taken by the FDP Council of States members. During preliminary meetings, the parliamentary group in fact opted not to address the substance of the issue, preferring to return the entire dossier directly to the Federal Council.

The FDP parliamentary initiative

The political impetus behind this direction bears the signature of Andrea Caroni, representative of the Free Democratic Party for the Canton of Appenzell Ausserrhoden. The proposal put forward by Caroni aims to transfer to the Federal Executive the mandate to define and structure the new regulatory provisions on equity capital. In statements reported by national media, the politician highlighted how this path would make it possible to quickly arrive at a clear and legally valid solution, preventing Parliament from having to operate directly as a legislator of specific ordinances in a matter so delicate for the financial stability of the Confederation. The line drawn by the Liberal exponent quickly gathered the compact consensus of the FDP group within the chamber of cantons, also finding favorable openness among the ranks of The Centre party, oriented toward supporting the same institutional approach in view of the formal steps planned in the parliamentary proceedings.

Operational details

Historical competencies and regulatory process

Andrea Caroni's intervention emphasized the distribution of institutional competencies within the Swiss legal system. As pointed out by the parliamentarian, provisions concerning the own funds of systematically important banking institutions have historically always fallen within the remit of the Federal Council. Historically, these regulatory parameters have been approved through the instrument of the executive ordinance, a procedural path that does not provide for the use of the popular referendum instrument. For proponents of this approach, keeping the matter under the direct responsibility of the Executive represents the most legally straightforward and efficient way also to address the current situation regarding capital requirements applied to large banks.

The debate on capital requirements and committee compromises

The regulatory framework discussed at the federal level is part of a reform context aimed at preventing systemic crises and protecting the country's overall economic stability. The original draft prepared by the Federal Council establishes that UBS must fully cover foreign shareholdings through first-tier core equity, known as CET-1. Faced with this imposition, which is considered particularly rigid, the Committee for Economy and Royalties of the Council of States sought to mediate at the end of August by formulating a compromise proposal. This intermediate solution provides that the coverage of foreign shareholdings does not take place entirely through CET-1 capital, but that half of this amount can be met through the use of so-called AT1 bonds, named Additional Tier 1. The contrast between the Executive's rigorous line and the flexibility hypotheses developed by the parliamentary commission constitutes the central core of the ongoing political confrontation in Bern.

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Key points

Financial assessments and operational prospects

The definition of capital requirements for the main Swiss banking institution represents a fundamental step for the national financial market and for the international perception of the solidity of the Swiss credit system. Industry experts and economic analysts continue to closely monitor the evolution of the institutional debate, evaluating the impact that the various foreign asset financing options could generate on the bank's capital structure and its global competitive capacity. The choice between the full coverage model using superior-quality Common Equity Tier 1 and the mixed solution that integrates subordinated debt instruments such as AT1 bonds involves complex assessments involving supervisory authorities, shareholders, and creditors.

How to follow economic and tax updates

For those who closely follow the economic, tax, and financial dynamics affecting the Swiss territory, it is useful to periodically consult the analysis and planning tools available online. Managing one's financial position, wealth, and taxes requires constant monitoring of continuously evolving federal and cantonal regulations. To delve deeper into aspects related to income management and pension or tax planning, you can use the salary calculator to simulate the impact of deductions and taxes on your employment income in Switzerland.

Source: rsi.ch