UBS: new banking rules, the Commission's compromise (cross-border guide)

Context

In brief

• The Economic Affairs Committee of the Council of States approves stricter rules for systemic banks (primarily UBS)
• Compromise: 50% coverage with CET-1 own funds + 50% with AT1 bonds
• Vote: 10 in favour, 2 against; the decision is not 'a gift to UBS'
• Currently, a capital coverage of 60% applies to foreign participations

Key facts

• What: New rules on foreign participations of systemic banks
• When: 31 August 2026
• Where: Economic Affairs and Taxation Committee of the Council of States (Bern)
• Who: CET-S (chairman Erich Ettlin, Centre/OW)
• Amount: 50% coverage in CET-1 + 50% in AT1 (vs. federal proposal of 100% CET-1)
• Votes: 10 in favour, 2 against

The Committee's decision

Bern, 31 August 2026. The Economic Affairs and Taxation Committee of the Council of States (CET-S) has approved a new regulation on foreign participations of large Swiss banks. According to the committee, systemic institutions — currently mainly UBS — must be subject to stricter rules on the coverage of these investments, but not at the level required by the Federal Council.

The Federal Council had proposed a coverage requirement of 100% through Common Equity Tier 1 (CET-1) own funds. The CET-S opted for a compromise: banks will cover half of their foreign participations with CET-1 own funds, and the other half through so-called AT1 bonds (Additional Tier 1). These are hybrid instruments that offer a high yield and can be converted into equity or declared worthless in the event of the company's distress — a scenario similar to what happened during the Credit Suisse crisis.

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Operational details

What AT1 Bonds Are and Why They Matter

To understand the CET-S compromise, one must first clarify the nature of AT1 bonds. Unlike Common Equity Tier-1 (CET-1) capital, which represents the most stable core capital of a bank, AT1 instruments are hybrid securities. They offer interest rates higher than conventional bonds, but they carry significant risks for those who hold them.

During the Credit Suisse crisis, AT1 bonds were declared worthless — a rare event that concretely demonstrated how these instruments do not guarantee capital safety. In the event of a bank's difficulties, the investor holding AT1s may lose it all, or see them converted into shares with drastically reduced value. This is why their use as a form of capital coverage is controversial: they do not offer the same level of protection as CET-1.

The Federal Council's proposal (100% CET-1) was more stringent and would have required UBS to accumulate significant amounts of capital as reserves. The Commission, on the other hand, considered that partial recourse to AT1s would allow a balance between two competing needs: maintaining prudential oversight over liquidity and capital stability, without forcing the bank to retain abnormally large volumes of CET-1 — resources it could otherwise deploy in profitable activities.

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Key points

What savers and investors need to know

This decision by the CET-S will have a long-term effect, as it still needs to be approved by the full Council of States and may be subject to further modifications. However, anyone holding deposits at UBS or owning Swiss bank securities should keep a few elements in mind.

First: the new rule is aimed at better protecting depositors from risks related to uncovered foreign participations. If applied, the rules will reduce the bank's unsecured exposure, which theoretically increases the security of deposits within the Swiss system. Second: if you hold AT1 instruments issued by UBS or other systemically important banks, be aware that the value of these instruments depends on the solvency of the issuing bank. In a financial stress scenario, the value of AT1 instruments can collapse or be wiped out, as happened with Credit Suisse.

Third: CET-S decisions reflect a global trend towards greater rigour in banking supervision. This is not an isolated phenomenon in Switzerland, but part of an international orientation. If you work in the financial sector, the new rules will entail stricter compliance requirements and demand close attention to internal risk management processes.

Next steps and what to monitor

The Commission's decision, although important, is not yet law. The text must be submitted to the full Council of States for final approval. After the Council of States, the procedure will follow the ordinary legislative paths, possibly including a meeting with the National Council (the lower house of the Swiss Parliament). Further modifications may emerge during this process.

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