Those Arguing for Protection for UBS get the Thumbs Down from the Swiss Regulator

Following the collapse of Credit Suisse AG, Switzerland is currently undergoing a regulatory overhaul, and senior management of UBS (Union Bank of Switzerland AG) plus their lobbyists have been arguing that the bank should be given special treatment allowing the bank to increase its competitiveness on the global financial stage. Executives and lobbyists have been arguing against the likelihood of the Swiss Government raising the capital requirements for UBS, suggesting that this will hurt what they refer to as a “National Champion”.

FINMA (Swiss Financial Market Supervisory Authority), the financial watchdog and  regulatory authority of Switzerland has basically given the thumbs down to any special treatment regarding the bank’s competitiveness against rivals in the global financial markets. The CEO of FINMA Stefan Walter was insistent when he said that in order to ensure the Swiss finance sector stays competitive, the best way is to strengthen reputation and stability via the medium of good oversight. He was quoted as saying “A direct mandate to competitiveness opens the door to conflicts of interest, political intervention or excessive lobbying by the supervised parties”. He went on to say, “the regulator should instead focus on the protection of creditors and the functioning of financial markets”.

It is the government’s plan that has brought the lobbyists and executives of UBS out in force which is to increase the capital requirements for UBS (currently Switzerland’s only global player) which may well result in calls for more capital in the region of USD 25 Billion. The CEO of UBS Sergio Ermotti has branded such a plan as “an extreme overreaction” that would effectively increase the costs of banking services and would subsequently damage competitiveness.

However, in May 2024 Stefan Walter said that UBS should provide a 100% backing for its foreign units which then and now aligned with the government’s plan to increase the capital requirements for UBS, a statement reiterated just recently. The reason for this statement is that in March 2023, when Credit Suisse AG failed, the problem was that the parent bank had such a low capital backing for foreign units they were less able to absorb losses. Today, pushing back against FINMA’s recommendations are Swiss business and banking lobbies who also have said that FINMA did not use its powers when Credit Suisse was in crisis.

As far as FINMA is concerned, CEO Walter said that FINMA currently lacks the powers that are currently available to other regulators saying that the Swiss supervisor can only curb or decline bankers’ bonuses if they have first received stabilising funds from the government. He went on to say that FINMA needs the ability to work independently and just as importantly without the pressure that currently comes from the political arena or from the institutions it supervises. FINMA has made its point, but now it is up to the Swiss parliament and the government which will decide the final outcome.