UBS capital requirements: A necessary but insufficient compromise

Switzerland is grappling with the "Lex UBS," a crucial piece of legislation designed to prevent future government bailouts of systemically important banks, particularly UBS, following its absorption of Credit Suisse. The law aims to bolster capital requirements for the banking giant, which is now the sole Swiss bank of international systemic importance.

A central point of contention revolves around the use of AT1 (Additional Tier 1) capital instruments. A proposed compromise suggests using these hybrid securities to cover the capital needs of UBS's foreign subsidiaries. However, these same instruments were controversially written down to zero in the Credit Suisse takeover, causing significant losses for investors who have since challenged the decision in court.

The delay in the decision by the parliamentary economic commission underscores the complexity of finding a solution that satisfies both the bank and the government, led by Finance Minister Karin Keller Sutter. While UBS is pushing for measures to maintain its international competitiveness, regulators are focused on ensuring financial stability. The uncertainty surrounding the AT1 instruments, despite their popularity with investors, is seen as detrimental to the proposed compromise.

Beyond capital requirements, the article suggests other measures are vital, such as implementing a Senior Managers Regime to hold executives accountable for failures. The effectiveness of the Swiss Financial Market Supervisory Authority (FINMA) in overseeing the merged entity is also paramount. Ultimately, strengthening UBS's capital is deemed a necessary but insufficient step toward ensuring robust supervision.

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Lesquels n’ont pas manqué de contester l’opération, obtenant gain de cause il y a un an devant le Tribunal administratif fédéral (TAF).