UBS Shares Rise as Swiss Lawmakers Consider Softer Capital Requirements

UBS shares climbed nearly 2% on Tuesday after reports indicated that Swiss lawmakers are considering easing proposed capital requirements for the banking giant. The potential changes could significantly reduce the amount of additional regulatory capital UBS may need to raise in the coming years.

Investor sentiment improved after Reuters reported that members of Switzerland’s parliament are discussing a requirement for UBS to back its foreign subsidiaries with 70% to 80% of Common Equity Tier 1 (CET1) capital, rather than the 100% level proposed by the Swiss government.

Proposed Rules Could Reduce UBS Capital Needs

Under draft legislation presented to parliament in April, UBS would be required to raise approximately $20 billion in additional CET1 capital if the full 100% backing requirement is ultimately approved.

However, analysts cited in the report estimate that lowering the threshold to 80% could reduce the additional capital requirement to around $15 billion.

An even lower requirement of 50%, which was discussed during a parliamentary hearing last month, could allow UBS to maintain its current capital position without the need to raise additional funds.

UBS Pushes Back Against Regulatory Plans

UBS has openly criticized the government’s proposal, arguing that the requirements are excessive and could place the bank at a competitive disadvantage.

The bank became Switzerland’s only remaining global banking institution following its takeover of Credit Suisse after the latter’s collapse in 2023.

Last week, UBS Chief Executive Officer Sergio Ermotti warned that the bank would likely emerge from the ongoing regulatory overhaul with at least a “black eye,” highlighting management’s concerns about the impact of stricter capital rules.

Regulatory Reform Follows Credit Suisse Collapse

The proposed legislation is part of Switzerland’s broader effort to strengthen financial stability and prevent a repeat of the Credit Suisse crisis.

Authorities aim to ensure that UBS maintains sufficient capital backing for its international operations, reducing potential risks to the Swiss financial system during periods of market stress.

The debate has also intensified tensions between UBS and Swiss Finance Minister Karin Keller-Sutter, while raising broader questions about balancing financial safety with Switzerland’s competitiveness as a global banking hub.

Alternative Capital Solutions Under Discussion

According to sources familiar with the discussions, lawmakers are evaluating a range of options beyond traditional CET1 requirements.

One proposal would allow UBS to use Additional Tier 1 (AT1) capital alongside CET1 capital. AT1 instruments are generally less expensive for banks but are viewed by regulators as carrying greater risk.

Several potential frameworks are reportedly being examined, with varying combinations of CET1 and AT1 capital designed to preserve both financial stability and UBS’s international competitiveness.

Liquidity Backstop Fees May Be Linked to Capital Levels

Lawmakers are also discussing a planned public liquidity backstop designed to provide emergency funding support to large banks during times of crisis.

Sources indicate that fees UBS would pay for access to this emergency facility could be tied directly to the bank’s capital requirements, creating an additional incentive for maintaining stronger capital buffers.

A Compromise May Ultimately Emerge

The upper-house committee currently reviewing the banking legislation is widely seen as sympathetic to UBS’s concerns that overly restrictive regulations could harm both the bank and the broader Swiss economy.

Nevertheless, stronger regulatory measures are expected to receive support when the legislation reaches a full parliamentary vote later this year.

Political observers believe centrist and moderate lawmakers will likely determine the final outcome. Several sources suggest a compromise solution requiring CET1 backing somewhere between 50% and 100% could emerge as the most realistic path forward and gain sufficient support across parliament.

The final decision will be closely watched by investors, as it could have a significant impact on UBS’s future capital strategy, profitability, and competitive position within the global banking sector.