Swiss government proposes higher capital requirements for banks

On June 6, Switzerland's Federal Council announced new capital requirements for major banks like UBS, mandating that UBS hold an additional $26 billion in core capital following the Credit Suisse crisis.

The Swiss Federal Council said in a statement that a review of the Credit Suisse crisis showed reforms are needed to reduce risks for the state, taxpayers and the economy, News.Az reports citing foreign media.

"These include stricter capital requirements for systemically important banks with foreign subsidiaries, additional requirements on the recovery and resolution of systemically important banks, the introduction of a senior managers regime for banks and additional powers for the Swiss Financial Market Supervisory Authority (FINMA)," the Federal Council statement said.

The council is proposing amendments to the Banking Act in the wake of the Credit Suisse crisis that led to the UBS/CS merger.

The Swiss National Bank supported the proposed amendments.

"The Swiss National Bank supports the amendments at legislative and ordinance level planned by the Federal Council in the areas of capital and liquidity requirements for systemically important banks, early intervention, and recovery and resolution planning. The measures planned are key to strengthening banks' resilience and their resolvability in a crisis, and thus the stability of the financial system."

"The crisis at Credit Suisse highlighted weaknesses in the regulatory framework. The regulatory adjustments now planned constitute a package of measures drawing the right lessons from this crisis."

One major concern about UBS is its ability to cope with losses in its foreign units, and that's one of the reasons the Swiss government is increasing capital requirements.

FINMA said it also backs the proposed changes ot the Banking Act.

"FINMA welcomes the planned introduction of several preventive and disciplinary instruments that will set the right incentives for supervised institutions and thus make a decisive contribution to reducing the likelihood of crises and resolution occurring in the Swiss banking centre."

FINMA said in particular, it supports, "the planned new statutory powers for FINMA in the areas of corporate governance, early intervention, recovery and resolution, as well as the introduction of higher capital requirements for systemically important banks with subsidiaries abroad."

Morningstar senior equity analyst Johann Scholtz said in a note, "While winding down Credit Suisse's legacy businesses should free up capital and reduce costs for UBS, much of these gains could be absorbed by stricter regulatory demands."

The new capital rules would require UBS to fully capitalize its foreign branches and do fewer stock buybacks.

UBS took over Credit Suisse in 2023, with the government underwriting $10 billion in UBS losses created by the takeover.

News.Az