UBS Investment Bank Cap Would be Welcome, Regulator Says

(Bloomberg) — The head of Switzerland’s financial watchdog signaled he’s in favor of UBS Group AG’s offer to limit the size of its investment bank, indicating a potential way forward in the debate about future capital requirements on the country’s largest lender.

“UBS has said that it would limit the size of the investment bank as a proportion of risk-weighted assets,” Finma Chief Executive Officer Stefan Walter said at a press conference in Bern on Tuesday. “We welcome that of course.”

Switzerland’s parliament will this year begin discussing legislation that could impose as much as $25 billion in fresh capital demands, a prospect that UBS has criticized heavily. As one potential concession, UBS executives have suggested that the investment bank cap be written into Swiss law, Bloomberg News has reported.

Walter’s comments are the first public confirmation that the bank has made such an offer.

The unit is already under a self-imposed limit of 25% of the lender’s risk-weighted balance sheet. The move may alleviate some concerns that riskier investment banking activities, such as trading, could trigger a crisis that ultimately requires a state bailout. 

The investment bank of Credit Suisse was the source of multi-billion-dollar losses in 2021 following the collapse of Archegos Capital Management. 

UBS’s balance sheet is more than twice the size of the Swiss economy. UBS bought Credit Suisse in a government-brokered rescue in 2023, and UBS itself was rescued by the Swiss government following the 2008 financial crisis. 

“It’s also important to understand that risks can come not just from investment banking but also mainly from non-financial risks” including money laundering, sanctions, conduct and cyber, Walter said at the press conference on Tuesday.

The government has said it’s not negotiating with UBS over the details of the legislation, which could take until 2028 or later to come into force. The government, Finma, and the central bank all back holding more capital against the bank’s foreign subsidiaries. 

(Adds further context on legislation)

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