Swiss government should soften certain UBS rules, second group of lawmakers says
News Summary
A second Swiss parliamentary committee, the upper chamber's influential economic affairs and taxation committee, has echoed a call from its sister body for the lower house, urging the government to soften certain capital rules for UBS. This move increases pressure on the government to ease the proposed regulations. The committee stated in a letter to the government that care should be taken not to exceed international standards and common practice in competing financial centers. Their intervention focuses on a proposed rule to prohibit including software and deferred tax assets as core capital, a change that the government estimates could increase UBS's capital requirements by about $9 billion. This specific rule, which can be mandated directly by the government without parliamentary approval, is currently set to come into force in 2027. UBS opposes the exclusion, arguing it would unjustifiably destroy capital, thereby weakening the bank and the broader Swiss financial industry.
Background
The collapse of Credit Suisse in 2023 prompted the Swiss government to devise plans aimed at making its remaining major bank, UBS, less risky to prevent a similar meltdown. These plans could potentially force UBS to hold up to $26 billion more in core capital. The current controversy centers on a specific proposed rule to prohibit the inclusion of software and deferred tax assets as core capital, a change that the government estimates could increase UBS's capital requirements by an additional $9 billion. This particular rule, set to come into force in 2027, can be mandated directly by the government via ordinance measures, bypassing parliamentary approval.
In-Depth AI Insights
What are the deeper strategic motives behind Swiss lawmakers pushing back against stricter capital rules for UBS, despite the Credit Suisse precedent? - The primary motive for lawmakers, despite the Credit Suisse collapse, is likely to safeguard UBS's international competitiveness and fortify Switzerland's status as a global financial hub. Excessively high capital requirements could disadvantage UBS against peers in Wall Street or London, potentially leading to capital flight or business contraction. - Lawmakers may also be seeking a balance between bank stability and economic vitality. Overly stringent regulations could constrain UBS's lending capacity and profitability, thereby negatively impacting overall Swiss economic growth. This reflects a national-level trade-off between ensuring financial safety and preserving economic interests. How might the Trump administration's "America First" financial deregulation stance influence Switzerland's approach to banking capital requirements? - The Trump administration's inclination towards deregulating U.S. banks could create additional competitive pressure for Switzerland. If the U.S. regulatory environment becomes more lenient while Switzerland tightens, capital and talent might gravitate towards the U.S., weakening the Swiss financial sector. - This external pressure might compel Switzerland to adopt a more cautious approach to avoid its regulatory standards significantly exceeding international peers, especially given the current fierce competition among global financial centers. Switzerland might feel compelled to reassess its 'super-strict' stance to prevent its banks from being at a structural disadvantage. What are the long-term implications for the stability of the global financial system if major financial centers, potentially influenced by competitive pressures, soften prudential regulations? - Systemic risk within the global financial system could increase. If countries competitively lower regulatory standards to attract banking activity, it could lead to regulatory arbitrage, allowing banks to accumulate risks in weakly regulated jurisdictions, reminiscent of the pre-2008 financial crisis era. - This could erode the gains from global cooperation and regulatory reforms established in the post-2008 era. A lack or regression of international coordination would complicate cross-border risk management, making future crises more contagious and impactful on the global economy.