Switzerland’s upper chamber has endorsed a tougher capital rule for UBS, potentially requiring the bank to hold an additional $18 billion in capital reserves.
UBS will need to support its overseas subsidiaries with 90% Common Equity Tier 1 (CET 1) capital, according to the measure endorsed by members of parliament.
This decision rejects the bank’s preferred approach, which would have allowed a 50-50 split between CET1 capital and Additional Tier 1 capital.
The move comes as Swiss authorities prepare new banking safeguards in response to the failure of Credit Suisse in 2023.
Ministers had initially proposed a tougher requirement, under which UBS would have had to cover its foreign businesses with 100% CET1 capital, a level the bank argued was too severe.
The legislation will now pass to the lower house, with a final outcome expected in 2027.
Read Also: Citi targets billionaires, hires advisers amid market volatility
Senators also rejected a separate proposal that would have required UBS to deduct the full book value of its foreign subsidiaries from the parent’s CET1 tier, a move that would have further heightened the capital strain. If the upper house decision is upheld, UBS warned that the cumulative impact would push its extra CET1 capital requirement to about $33 billion since the Credit Suisse acquisition.
UBS said the 90% CET1 requirement for foreign participations would mean holding about $16 billion more in CET1 capital, in addition to around $2 billion in extra CET1 capital at UBS AG.
In addition, regulators indicated last month that UBS must construct roughly $20 billion in supplementary capital buffers to guard against a repeat of the systemic weaknesses that led to Credit Suisse’s collapse.
In a statement, UBS said the political outcome “is not a compromise and fails to address the root causes of the Credit Suisse collapse.”
The bank’s chief, Sergio Ermotti, previously stated that UBS needs a wider business base in the US while preparing for possible outcomes from the Swiss parliamentary debate over stricter capital requirements.