UBS, which has substantial wealth management operations in the US, faces tougher regulatory requirements on capital in its home base of Switzerland. The Alpine state's federal government sets out changes in rules, enforcement and requirements on "systemically important" banks – of which there are four.

UBS faces a rise in regulatory capital requirements under reforms which the Swiss government wants following last year’s collapse of Credit Suisse. A handful of other such systemically important Swiss banks are in the same bracket.

The Federal Council wants such banks to hold significantly more capital against their foreign units. Reports (Bloomberg, others) said the proposals are more severe than expected. UBS, Raiffeisen Group, Zürcher Kantonalbank and PostFinance are deemed systemically important lenders.

Shares in UBS were down 2.73 per cent at the close of trade in Zurich’s stock market yesterday, at SFr27.07 ($29.7) per share. They were down further this morning, around -0.63 per cent, at SFr26.90.

“The Federal Council is proposing a package of 22 measures for direct implementation, with a view to strengthening and further developing the too-big-to-fail regime,” the Swiss government said in a statement yesterday. “Seven other measures are to be examined in greater depth. Implementation of the package should significantly reduce the likelihood that another systemically important bank in Switzerland will experience a severe crisis and that emergency measures by the state will be necessary.”

“The quantitative and qualitative capital requirements for systemically important banks should be tightened in a targeted way and supplemented with a forward-looking component. This should strengthen the capital base and improve resolvability,” it said, without specifying a figure.

Switzerland is haunted by the fact that the balance sheet of UBS, at around $1.7 trillion (source: Reuters), is double the size of Switzerland's annual economic output. If it were to fail, the country might not be able to bail UBS out. In the US, the Dodd-Frank legislation of 2010 was enacted, in part, to prevent similar scenarios unfolding in the US. Ironically, the sector has consolidated further, with the mergers of Wells Fargo and Wachovia, for example, JP Morgan's purchase of First Republic last year, and the rescue of Silicon Valley Bank. Vulnerabilities in the world's banking system, exposed by rising interest rates since the pandemic, have returned as a focus for wealth managers and advisors to HNW clients.

“Moreover, in the event of a crisis, the resolvability of a systemically important bank as a credible option should be ensured. In this way, the Federal Council wants to minimise the risks and costs for the state, the economy and the taxpayer,” the Federal Council statement said. 

Last March’s purchase by UBS of Credit Suisse – a deal made at the behest of the Swiss federal government – leaves the Alpine state with one universal bank.

Besides the “too-big-to-fail” issue, which became a common talking point after the 2008 crash, there is also concern about an arguable hit to competition in today’s Swiss banking industry.

The Swiss government called for the regulator, FINMA, to have more tools to prevent crises, such as a senior managers regime (clear allocation of responsibilities) and rules on bonuses (such as retention periods and clawbacks). 

The government said it is considering giving FINMA power to impose fines; the Swiss National Bank should have significantly more potential to inject liquidity in the financial system, and authorities should have more tools to ensure that a bank can exit the market in an orderly way.