Swiss Govt Tightens Rules For UBS After Credit Suisse Rescue

Switzerland's UBS and three other systemically relevant banks are set to face stricter capital requirements, announced the Swiss government on Wednesday, aiming to prevent a recurrence of the collapse witnessed by Credit Suisse.

Outlined in a comprehensive 209-page document, the Swiss government proposed 22 measures for immediate implementation to regulate banks deemed "too big to fail" (TBTF). However, it refrained from specifying the extent of the stricter capital requirements.

Swiss Finance Minister Karin Keller-Sutter emphasised the necessity of these measures to prevent banks from encountering situations akin to Credit Suisse's downfall, during a press conference.

The proposed plan holds significant importance domestically and internationally, given that if UBS were to falter, there are no local competitors capable of absorbing its impact. Any bailout or nationalization would likely inflict severe damage on public finances.

With a balance sheet nearing uSD 1.7 trillion, UBS's size has doubled Switzerland's annual economic output, underscoring its exceptional significance within the country's economy.

The government's report suggested a targeted tightening of quantitative and qualitative capital requirements for systemically important banks, along with a forward-looking component. It mentioned that the increase in requirements for UBS would be substantial, particularly if the bank maintains its current size and structure or expands further. However, UBS declined to comment on the report.

Following the announcement, UBS shares experienced a drop of up to 4 per cent, leading to a temporary halt in trading. Despite this, the stock has seen a 60 per cent increase since its acquisition of Credit Suisse in a government-backed rescue last year, surpassing the 37 per cent gain in the Stoxx Europe 600 Banks Index during the same period.

The acquisition of Credit Suisse marked the largest merger of systemically important banks since the financial crisis of 2007-2009. Keller-Sutter reiterated the government's commitment to discouraging reckless corporate behavior and excessive bonuses, and pledged to introduce measures ensuring the potential clawback of such incentives.