What new capital requirements face UBS after Credit Suisse rescue?

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Switzerland Proposes Stricter Capital Requirements for Systemically Important Banks, Primarily UBS

Following the rescue of Credit Suisse, the Swiss government has proposed enhanced capital requirements for systemically relevant banks, with a particular focus on UBS. The government has outlined 22 measures aimed at strengthening oversight of banks deemed "too big to fail" (TBTF). While the exact quantitative increase in capital requirements has not yet been specified, they are anticipated to be substantial for UBS, especially if it maintains its current size and structure.
Enhanced Capital and Oversight Measures Proposed

The Swiss government's recommendations include tightening both quantitative and qualitative capital requirements for systemically important banks, supplemented by a forward-looking component. These measures are intended to be implemented in two packages during the first half of 2025. Beyond capital increases, the proposals suggest granting additional powers to the Swiss market regulator FINMA, potentially applying capital surcharges, and reinforcing the financial standing of subsidiaries. The government has indicated that these measures should be targeted, specifically addressing UBS as the only remaining globally systemically important bank in Switzerland.
Substantial Capital Increase Expected for UBS

The government explicitly stated that the increase in capital requirements for UBS would be "substantial," particularly if the bank retains or expands its current scale and organisational framework. The UBS balance sheet currently stands at approximately US$1.7 trillion, which is double Switzerland's annual economic output. This significant size underscores the rationale behind the proposed stringent measures, aiming to mitigate risks to the broader Swiss economy should the bank face distress.
Consideration of Bonus Clawbacks and International Scrutiny

In addition to capital requirements, the government will also consider the implementation of bonus clawbacks for senior management, aligning with a recent parliamentary motion. This move comes amid heightened scrutiny of Switzerland's banking sector and follows concerns raised by international bodies. Organisations such as the IMF, OECD, and the Financial Stability Board have expressed reservations regarding the UBS-Credit Suisse merger and its implications. The Financial Stability Board is also reviewing UBS's ranking among global systemically important banks, which could lead to further capital demands.

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What new capital requirements face UBS after Credit Suisse rescue?

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