UBS may be inching closer to a favorable resolution in its dispute with the Swiss government over tough new capital requirements—thanks to the country’s deliberately measured political process.
The debate, which has drawn unusual emotion by Swiss standards, centers around how much additional capital UBS should be required to hold for its international subsidiaries. The government, backed by market regulator FINMA, is pushing for stronger safeguards in the wake of the 2023 collapse of Credit Suisse—a debacle that left a lasting mark on public sentiment and institutional credibility.
Credit Suisse’s Shadow Looms Over UBS
Public frustration remains high over the Credit Suisse rescue, and regulators are determined to avoid a repeat failure of a “systemically important” bank. Although UBS was urged to lead the rescue of its rival, it is now contending with the regulatory burden that followed, particularly proposals to raise capital buffers by as much as $26 billion.
These new rules are part of a broader “Too Big to Fail” (TBTF) reform package introduced in June. The proposed reforms aim to fortify Switzerland’s financial system by protecting the economy, taxpayers, and the state from future banking crises.
A Slow, Pragmatic Legislative Shift
Initially, the Swiss government planned to implement the changes swiftly through a federal ordinance—an executive-level mechanism that bypasses parliamentary approval. However, in a notable policy shift, the finance ministry opted to submit the matter to full parliamentary debate, recognizing its scale and sensitivity.
This has led to a piecemeal implementation approach: some aspects, like liquidity requirements, would be enforced via ordinance, while key reforms—such as capital rules and expanded powers for FINMA—would undergo parliamentary scrutiny.
But that fragmented path may be replaced with a more unified process. In late June, the lower house’s economic committee passed a motion demanding that all TBTF measures be reviewed together in parliament. The upper house committee is expected to take a similar stance in August. If both chambers agree, a binding motion could be passed as early as September, delaying the enforcement of ordinance-level measures until the entire package is evaluated.
What It Means for UBS
Such a change in process would benefit UBS in two significant ways.
First, it extends the timeline. If lawmakers review the entire reform package collectively, UBS may gain “breathing room” to adapt, and decisions could be made with less political and emotional pressure.
Second, the bank would have greater scope to influence the final outcome. A comprehensive package gives lawmakers more room for negotiation and adjustment. “Politically, it may be easier to find a compromise with a full package,” said a source close to the discussions. “It’s no longer just headlines and focus around the capital rules.”
This approach also aligns with Switzerland’s long-standing traditions of consultation and consensus-building.
Market Implications and Outlook
While UBS may welcome the possibility of compromise, uncertainty continues to weigh on its share price, which has fallen 3% this year—underperforming a 35% rise in the broader European banking sector. Still, given the potential for a more balanced and considered regulatory outcome, some at the bank may view that uncertainty as a worthwhile trade-off.
With global headlines dominated by geopolitical tensions and U.S. politics, public and legislative attention on the UBS-Credit Suisse saga may continue to fade, easing political pressure.
Ultimately, whether the evolving Swiss compromise leads to a better regulatory framework remains to be seen—but for UBS, the prospect of a more manageable outcome is clearly coming into view.
