IMF backs Federal Council in dispute over UBS capital requirements

The International Monetary Fund (IMF) has thrown its support behind the Swiss Federal Council's proposals aimed at reinforcing the regulatory framework for banks deemed "too big to fail." This backing comes as UBS, Switzerland's largest bank, lobbies Parliament for more lenient regulations.

The IMF's latest country assessment, presented in Bern, lauded Switzerland's economic resilience. However, the fund's stance on the UBS situation was notably strong. James Walsh, head of the IMF mission, explicitly stated that the fund "unequivocally supports" the Federal Council's proposal currently before Parliament. He added that these measures would enhance the stability and resilience of the Swiss economy.

Walsh emphasized that countries with globally systemically important banks typically implement higher capital requirements for such institutions. The goal, he explained, is to ensure that these banks have sufficient capital to absorb losses if problems arise. The IMF views the government's proposed measures for UBS as a significant step in this direction.

A particularly contentious issue is the extent to which UBS must fund its foreign subsidiaries with equity capital, as some are currently financed with debt. The Federal Council proposes that these foreign holdings be backed 100 percent by hard equity capital (CET-1). UBS has criticized this as an extreme demand that deviates from international standards. The IMF, however, aligns with the Federal Council on this point, describing the proposal as "targeted and welcome" and consistent with international recommendations.