Swiss parliament panel fails to reach deal on UBS capital rules

A Swiss parliamentary committee on Tuesday could not come to an agreement on proposed new banking regulations for UBS. Some lawmakers sought to soften tougher rules crafted by the government following the Credit Suisse collapse. The draft bill would necessitate UBS to hold approximately $20bn in additional Common Equity Tier-1 capital (CET1) to prevent further banking crises and safeguard taxpayers.

However, UBS, which took over Credit Suisse after its dissolution in 2023, contends that the requirement is excessive, would weaken its competitiveness, and harm Switzerland's banking industry. The bill is under examination by the economic affairs and taxation committee of parliament's upper house, where lawmakers worried about the strict measures have suggested amendments to lower the capital requirement for UBS.

No consensus was reached on Tuesday, and the committee is set to reconvene on August 31, according to Fabio Regazzi, a committee member from the Centre party. The bill's main proposal is for UBS to fully capitalise its foreign subsidiaries, currently at 60%, using CET1 capital only. The committee has also considered permitting UBS to utilize Additional Tier 1 (AT1) capital to fulfill part of the requirement.

AT1 debt is more cost-effective than CET1 capital and is intended to absorb losses during periods of stress, but regulators view it as less secure. Discussions among lawmakers have also centered on strengthening AT1 instruments, potentially introducing a higher regulatory threshold. This could compel UBS to suspend dividend payments to investors if its capital ratio falls below a certain level, thereby enhancing the loss-absorbing capability of AT1 bonds. However, lawmakers noted that the specifics of how such measures could function remain unresolved.