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Swiss Lawmakers Seek Balanced Capital Rules for UBS Amid Stability Debate

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Swiss lawmakers are preparing to debate new capital requirements for UBS next month as they look to strengthen the country’s banking system while ensuring the lender remains globally competitive. The proposed rules, introduced after the 2023 collapse of Credit Suisse, originally called for UBS to hold around $20 billion in additional Common Equity Tier 1 (CET1) capital. However, many lawmakers believe the requirement may be reduced to avoid discouraging investors and limiting the bank’s growth.

Parliamentary discussions are expected to focus on lowering the amount of CET1 capital required to support UBS’ foreign operations. Proposals under consideration range from requiring 50% to 80% capital backing instead of the government’s proposed 100%, potentially reducing the additional capital requirement to between $12 billion and zero. Swiss regulators, including the Swiss National Bank, have warned that weaker capital rules could increase financial risks and leave taxpayers exposed during future banking crises.

UBS has argued that stricter capital requirements would reduce funds available for share buybacks, technology investments, including AI, and international expansion, while also affecting employee bonuses and increasing costs for customers. Lawmakers are therefore exploring a compromise that could allow the bank to use Additional Tier 1 (AT1) capital alongside CET1, aiming to improve financial stability without placing an excessive burden on Switzerland’s largest bank. Final legislation is expected to be considered later this year.

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ECB Should Brace for New Shocks, Including Russian Threats: Simkus

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European Central Bank policymaker and Lithuanian central bank governor Gediminas Simkus said the ECB’s current policy stance is appropriate, with inflation at target and interest rates in a neutral zone, but warned that fresh shocks could disrupt this balance. Speaking to Reuters, Simkus highlighted persistent global uncertainty driven by geopolitical tensions, particularly the risk of Russian military aggression in eastern Europe, alongside trade frictions and other external pressures.

Simkus stressed that the ECB must ensure its systems are resilient to such risks, including safeguarding cash distribution and payment infrastructure in case of heightened security threats. He noted that countries bordering Russia face unique challenges, ranging from cyberattacks to airspace incursions, and argued that central banks must remain operationally prepared. He also added that banks need to be ready for longer-term risks such as climate change.

On monetary policy, Simkus said interest rates are firmly on hold at the ECB’s February meeting, as modest inflation fluctuations around 2% are normal. However, he cautioned against signalling future moves, saying the next rate change could equally be a hike or a cut. Emphasising flexibility, he said the ECB should avoid overreacting to short-term data swings and instead focus on broader economic trends, as shocks tend to affect growth before feeding into inflation.

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