Swiss lawmakers set to send UBS capital compromise to upper house

ZURICH, Aug 31 (Reuters) - Swiss lawmakers are expected to make a decision later on Monday on capital rules for UBS and send a watered-down draft banking bill to the upper house of parliament, according to people familiar with the matter.

The Swiss government wants UBS to hold about $20 billion in additional Common Equity Tier 1 capital to bolster financial stability after its emergency takeover of fallen rival Credit Suisse in 2023, a requirement UBS has called excessive.

Lawmakers are trying to balance protecting taxpayers from a future banking crisis against the bank's concerns that tougher capital requirements could undermine its competitiveness, with several less costly compromise proposals under consideration.

The upper house committee overseeing the bill is leaning towards allowing UBS to back its foreign subsidiaries with 50% CET1 capital, rather than the 100% demanded by the government, but no decision has yet been taken, two of the sources said.

Other proposals would require 75% and 80% CET1 backing. UBS will likely be allowed to use cheaper Additional Tier 1 (AT1) capital to make up any gap to full capitalisation of its foreign subsidiaries. 

Discussions on measures to make AT1 debt more secure are continuing in the committee. A press conference is scheduled for Monday after 1500 GMT.

The draft banking bill is due to be debated by the upper house in September before moving to the lower house committee and chamber, where UBS could face a tougher reception. 

Final capital rules will not become clear until the end of 2026 at the earliest, and the process is likely to extend into next year.

(Reporting by Ariane Luthi. Editing by Mark Potter)