Amid growing international scrutiny and concerns about the potential systemic risks posed by major banks, the Swiss government has unveiled a comprehensive plan to strengthen the capital requirements of systemically relevant banks, including industry titan UBS. This move comes a year after the government-backed takeover of Credit Suisse by UBS, creating an unprecedented concentration of banking power in Switzerland.
The government’s 209-page report outlines 22 measures aimed at shielding the Swiss economy from the potentially disastrous consequences of a bank collapse. While the report stops short of specifying the exact increase in capital requirements, it emphasizes that they will be “substantial” for UBS if it maintains its current size or expands.
Public Concerns and Global Scrutiny
The move to toughen capital requirements stems from heightened concern over the banking culture in Switzerland. The lower house of parliament has backed a motion to recover salaries from senior management if banks are rescued with public funds, and the government is considering claw backs for bonuses as well.
International organizations such as the IMF, OECD, and Financial Stability Board (FSB) have also expressed concerns about the risks associated with the UBS-Credit Suisse merger. The FSB is poised to review UBS’s ranking among global systemically important banks, a status that could lead to even stricter capital demands.
Impact on UBS and the Economy
Analysts estimate that UBS may need to raise billions of additional dollars to safeguard against potential risks. This could force the bank to reduce its credit supply or even shrink its balance sheet, raising concerns about the impact on consumer lending and the overall economy.
UBS executives have warned that excessive capital requirements could harm consumers and reduce the bank’s competitiveness internationally. Finance Minister Karin Keller-Sutter has acknowledged the need for tighter requirements but stressed the importance of maintaining Switzerland’s global financial competitiveness.
Strengthening Market Oversight
The government report also proposes enhancing the powers of the Swiss market regulator FINMA and strengthening the financial position of subsidiaries. However, it rejects the idea of a blanket increase in capital requirements and instead advocates a targeted approach that strengthens transparency and provides clarity in crisis situations.
The measures are expected to be implemented quickly, with two packages of changes planned for 2025. The government will present ordinances that can be approved directly, while parliament will consider additional proposals.
International Implications
Switzerland’s move to strengthen bank capital requirements has wider implications for global financial regulation. As the country with the largest banking sector relative to its GDP, its actions will be closely scrutinized by other financial centers around the world.
The government’s report emphasizes the need for international cooperation and collaboration in addressing the risks posed by systemically relevant banks. By taking proactive steps to fortify its financial sector, Switzerland is setting an example for other countries to follow and contributing to the stability of the global financial system.
Data sourced from: cnbc.com
