John Revill
ZURICH (Reuters) – UBS could take years to feel the impact of new rules after the Swiss government laid out plans aimed at keeping the “monster bank” in check that were devoid of detail and foreshadowed a tortuous political process to enshrine them in law
Shares in the Zurich lender fell on Wednesday after the Treasury said its “too big to fail” guidelines included tightening capital requirements for UBS and other systemically important banks following the 2023 rescue of its ailing rival Credit Suisse.
But the government left open what specific impact it expected from the plan, and analysts said promises to strengthen FINMA market oversight, control excessive wages and improve support measures were unlikely to cause much concern for UBS.
“The measures proposed by the Federal Council are not sufficient to finally regulate the banking sector effectively,” said Cedric Wermuth, co-chairman of the centre-left Social Democrats (SP), the second largest party in the Swiss parliament.
“The decision not to introduce stricter capital adequacy criteria is completely negligent and a mockery of taxpayers who will have to foot the bill,” he added.
Switzerland said capital requirements could be adjusted to take into account exposure to international subsidiaries, as well as creditor management, complexity and profitability, without setting specific thresholds.
The government said it was “difficult to reach a final decision on the exact impact” of the higher capital requirements being discussed, but said Swiss banks would benefit.
“The Federal Council is convinced that the report presented today points the way to significant improvement,” Finance Minister Karin Keller-Sutter said at a press conference.
However, a person familiar with UBS’s thinking said the bank was “relieved” by the plan outlined and hoped to lobby for less stringent terms as the political process unfolds.
UBS declined to comment.
A person familiar with the government’s thinking said the legislative changes would not be implemented until 2026, and political changes in Switzerland mean that whatever is ultimately passed may not have any impact on UBS until later .
The measures were not intended to be a major shake-up, but a series of steps aimed at introducing additional protections to reduce risks in the banking sector, the person said.
The government has said it wants to introduce two packages for implementation in the first half of 2025: one with regulation-level changes that can be approved by the cabinet, and then a more far-reaching bill for parliament.
COMPROMISE
Swiss authorities staged a takeover of Credit Suisse last year, allowing UBS to buy its rival for 3 billion Swiss francs ($3.3 billion) and creating what critics dubbed a “monster bank” that could capsize the economy if it collapses.
That amount was a fraction of what Credit Suisse was recently worth and fueled a subsequent 60% rise in UBS shares.
The powerful lender now has a balance sheet of about $1.7 trillion, twice the size of the Swiss economy.
Peter Kunz, a regulatory expert at the University of Bern, called the proposals a typical Swiss compromise.
“What I read between the lines was, ‘Let’s cross our fingers and hope nothing happens to UBS,'” he said.
Effective measures must be international, he said, noting: “Switzerland cannot do everything on its own.”
Analysts say tightening capital requirements could limit investor returns, even as the details remain unclear.
“A lot more detail is needed to make a final determination,” said Thomas Hallett, an analyst at KBW.
Uncertainty carries with it some risk.
In January, one of its 10 largest shareholders told Reuters that if UBS wanted to remain a Swiss bank, resolving the regulatory debate in its home country was crucial.
FINMA and the central bank must be happy with their business model, otherwise disagreements could arise over the risks posed by a bank of this size, the shareholder added.
The Swiss Bankers Association said the plan risked ushering in “a wave of regulation that will impose a huge burden on banks and the economy as a whole.”
Adriel Jost, a researcher at the Swiss Economic Policy Institute, said the proposals show the “subsidies” for banks remain in place.
“This will cost Switzerland dearly during the next crisis, whether through emergency liquidity, absorption of bad assets, refinancing or temporary nationalization,” he said.
“It’s a bold bet that a small upfront increase in oversight could change this situation.”
($1 = 0.9122 Swiss francs)