Council of States demands significantly more equity capital for UBS foreign subsidiaries

Background: UBS after the Credit Suisse takeover

The background to the debate is the planned UBS regulation following the takeover of Credit Suisse. Concerns had repeatedly been raised in the political discussion that the Swiss major bank could build up a cluster risk through its foreign subsidiaries. UBS in particular had pushed back against very high equity capital requirements and pointed to competitiveness in international business.

Already on the previous Thursday, Council of States member Andrea Caroni had first explained why the capital question needed to be settled through a Federal Council ordinance, and then withdrawn his own motion to enter into debate, which had pursued exactly this goal. This cleared the way for today's substantive political debate in the plenary.

Partial victory in court in New York

The ongoing legal disputes surrounding UBS also played a role in the discussion. At the end of July, Switzerland had secured an important partial victory before a New York appeals court: The court declared itself not competent, citing Swiss state immunity. This ruling strengthens Switzerland's position in civil law disputes involving the major bank.

Notwithstanding this judicial partial success, the political regulatory debate in Bern remains open. Representatives from the bourgeois camp, including members of the FDP, had previously advocated for a differentiated solution. Voices close to the business community warned of a weakening of the financial centre if Swiss banks could no longer operate competitively abroad.

Open divergence with the National Council

The Federal Council and in particular Karin Keller-Sutter are now required to respond to the Council of States' decision. Since the smaller chamber clearly deviates from the line of the National Council, a reconciliation of differences between the two chambers is likely. If no agreement is reached, a mediation procedure would have to be initiated.

Observers point out that UBS, with a view to its international business activities, has an interest in a broadly supported political solution. Sergio Ermotti has repeatedly spoken out in the past in favour of stable regulatory framework conditions, while at the same time warning against over-regulation.

At the end of the day, it remains unclear whether the Council of States' position will prevail in the overall picture. What is clear, however, is that Swiss major banks must expect significantly stricter equity capital requirements for their foreign activities than was foreseeable just a few months ago.