Swiss National Bank backs stricter UBS capital rules

The Swiss National Bank (SNB) has publicly backed the Swiss Federal Council's push for more stringent capital requirements for UBS, the country's remaining major bank. The SNB's latest financial stability report clearly aligns with the government's position, particularly concerning the capitalization of UBS's foreign subsidiaries.

At the heart of the debate is whether UBS's parent company should continue to partially capitalize its foreign subsidiaries or fully back them with hard equity capital (CET-1). The SNB supports the Federal Council's recommendation that these subsidiaries must henceforth be fully capitalized. The central bank views this approach as the most effective way to ensure a robust capital base for the parent company, stating that the proposed full capitalization is "targeted and proportionate."

According to the SNB, the current incomplete capitalization leaves the parent company vulnerable to losses incurred by its foreign holdings. It also restricts the bank's ability to stabilize itself in a crisis, for example, by divesting foreign operations. SNB Vice President Antoine Martin, who heads the department responsible for financial stability, emphasized that fully capitalizing foreign subsidiaries addresses a critical regulatory gap, a weakness that became apparent during the collapse of Credit Suisse.