In a move to prevent a repeat of the Credit Suisse collapse, Switzerland has announced stricter capital requirements for UBS and other systemically relevant banks. The measures, part of a comprehensive plan proposed by the Swiss government, aim to bolster the resilience of these financial institutions and protect the economy from potential shocks.
Finance Minister Karin Keller-Sutter emphasized the need for preventative measures to avoid situations like the one faced by Credit Suisse. The plan includes 22 measures designed to enhance oversight and regulation of banks deemed “too big to fail.”
UBS, with a balance sheet double the size of Switzerland’s annual economic output, is a focal point of the new regulations. The bank’s shares fell in response to the announcement, reflecting market concerns about the impact of the stricter requirements.
The government’s plan also addresses issues such as excessive banker pay and corporate behavior. Measures to disincentivize reckless behavior and ensure accountability, including the clawback of bonuses, are part of the proposed reforms.
While the government aims to implement the measures swiftly, it has rejected the idea of temporary public ownership of a bank in crisis. Instead, it seeks to strengthen the powers of the Swiss market regulator FINMA and introduce capital surcharges as additional safeguards.
Despite the potential impact on UBS’s operations and profitability, the government is mindful of maintaining Switzerland’s competitiveness as a financial center. Striking a balance between stricter regulations and maintaining a level playing field for Swiss banks is crucial.
Analysts predict that UBS may need to find additional capital, but the exact impact will depend on the findings of a parliamentary investigation into Credit Suisse’s collapse, due later this year. The government’s move has been welcomed by FINMA, which sees the proposals as aligning with its objectives following the financial crisis.
International organizations, including the IMF and the OECD, have raised concerns about the risks posed by UBS’s size and the potential fallout from the Credit Suisse merger. The Financial Stability Board is set to review UBS’s status as a global systemically important bank, which could lead to higher capital requirements.
While the Swiss lower house has called for stricter leverage ratios for systemically relevant banks, analysts believe that UBS is unlikely to face such stringent terms. However, higher capital requirements could impact UBS’s balance sheet and credit supply, raising concerns about its ability to serve consumers effectively.
As Switzerland moves forward with its plan to strengthen oversight of its banking sector, the implications for UBS and other major banks will be closely watched by regulators, investors, and consumers alike.
(Source: Barron’s | Reuters)
