Swiss Upper House Backs 90% CET1 Capital Rule for UBS

Switzerland's upper house of parliament voted on Wednesday in favour of capital rules that would require UBS to back its foreign units with 90% Common Equity Tier 1 (CET1) capital, delivering a setback to the country's largest bank.

The proposal is part of a broader government effort to tighten banking regulation and prevent a repeat of the 2023 collapse of Credit Suisse. Lawmakers backed the 90% CET1 option by 29 votes, against 16 for a more moderate plan that would have allowed UBS to hold 50% CET1 and 50% Additional Tier 1 (AT1) capital, which is cheaper to hold.

Before the vote, Finance Minister Karin Keller-Sutter argued that hard equity is the most important lever in any crisis. She said Switzerland could not cope with a potential collapse of UBS, whose balance sheet is larger than the national economy, and that guidelines therefore had to be set.

The outcome is a blow to UBS, which had pushed back against the government's original proposal to require 100% CET1 backing for foreign units. The bank argued that such a demand was excessive and would make it less competitive. UBS Chairman Colm Kelleher warned last week that the bank could reconsider its Swiss base if capital rules became too harsh.

CEO Sergio Ermotti said on Tuesday that the 90% CET1 rule would reduce UBS's additional capital requirement by $4 billion compared with the 100% proposal. Based on the bank's calculations, the full regulatory overhaul would still require around $18 billion in extra CET1 capital. Ermotti had described the 90% plan as no real compromise and urged support for the AT1 option, warning in a newspaper column that excessive capital requirements would ultimately be borne by shareholders, customers and employees.

UBS shares were up 0.9% at 0917 GMT following the upper house decision. The bill now moves to Switzerland's lower house, with a final decision expected at the end of this year at the earliest, and more likely in 2027.