Swiss lawmakers reflect shift on banks with UBS capital decision

By Dave Graham

ZURICH, Sept 24 (Reuters) - A decision by Swiss lawmakers to defy calls by UBS and big business to moderate new banking rules has highlighted misgivings about the risks posed by one of the country's most visible institutions after the 2023 collapse of Credit Suisse.

Wednesday's upper house vote in favour of increasing the amount of capital Zurich-based UBS, which has a bigger balance sheet than the Swiss economy, must hold to back its foreign units went further than many political analysts had expected.

"People are thoroughly fed up. It wasn't a vote of conviction, it was about fear of their own voters," said Cedric Wermuth, co-leader of Switzerland's Social Democrats.

After two major banking crises inside two decades, the vote showed pressure had reached the point where parliament could not ignore popular demand for stricter rules, he told Reuters.

Most upper house lawmakers belonging to parties either on the centre, centre-right or right of the political spectrum joined left-wingers in voting to make UBS back its foreign subsidiaries with 90% Common Equity Tier 1 capital over a more moderate plan that would have cost the bank less.

Speaking in support, Centre party lawmaker Pirmin Bischof said Credit Suisse's downfall made it vital that Switzerland try to ensure it could never happen again.

The vote followed a lengthy consultation process in which Swiss cantons and business groups had urged the government to keep the capital requirements in line with other major financial centres, raising concerns about Switzerland's competitiveness.

A Swiss poll published in June found 79% of respondents clearly ⁠or somewhat backed ​tougher capital requirements, even if it meant UBS paying lower dividends or having to accept less growth. Just 9% took the opposite view.

Jakob Tanner, a history professor at the University of Zurich, said scepticism had been fuelled by the billions of dollars in bonuses paid out by Credit Suisse between 2010 and 2022 even as it racked up the losses that eventually sank it.

A recent study published by the Swiss Bankers Association showed that while 53% of the population took a positive view of banks in 2025, this was down from 75% in 2021.

Although the Swiss lower house must still debate the capital plan drawn up by Finance Minister Karin Keller-Sutter in response to the demise of Credit Suisse, many analysts view it as a bigger hurdle for UBS, which bought its historic rival.

UBS, whose role in stabilising Switzerland's financial sector by acquiring Credit Suisse is often acknowledged by lawmakers, declined to comment. After the vote, it said the decision disregarded serious concerns expressed by business representatives, employee associations and most Swiss cantons.

LOBBYING

The Swiss National Bank and financial regulator FINMA both supported Keller-Sutter's original plan to make UBS back its foreign units with 100% CET1 capital. At present it must back those units with 60% capital, and is not limited to only using CET1.

Several lawmakers had initially expressed confidence that a compromise passed in late August that would allow UBS to back its foreign units with 50% CET1 capital and cheaper 50% Additional Tier 1 (AT1) capital, would clear the upper house.

But during lengthy debate in parliament last week it became clear the 90% CET1 plan was gaining ground and the final decision was pushed into this week.

UBS set about rallying support for the AT1 option, with its chairman Colm Kelleher warning the bank would have to consider its future in Switzerland if the new rules were too harsh.

Switzerland's top business lobbies wrote to lawmakers urging them not to overregulate UBS and to back the AT1 plan.

Then, in a weekend interview, UBS CEO Sergio Ermotti condemned the 90% CET1 option as excessive and said regulators were partly to blame for Credit Suisse's demise.

Klaus Stoehlker, a Zurich-based public relations consultant, said the UBS campaign appeared to have alienated both lawmakers and authorities responding to public concerns.

Switzerland was now likely to be left with a weaker bank, fettered by stringent new rules that risked accelerating the decline of its financial sector, Stoehlker added.

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(Reporting by Dave Graham; Additional reporting by Ariane Luthi; Editing by Alexander Smith)