Switzerland Sticks to Bank Capital Schedule in Blow to UBS

(Bloomberg) — Switzerland said it will keep to its schedule for implementing global bank capital rules despite continued wrangling over the standards in the US, potentially putting its largest lender UBS Group AG at a competitive disadvantage.

The country’s Federal Council said Wednesday it has taken note of the recent developments and “despite delays in some countries, it sees no reason to deviate from its existing timetable.” The standards will apply from Jan. 1, it said in a statement. 

Bloomberg reported last week that Swiss banks including UBS were pressing the government to postpone part of the rules that relate to banks’ trading books. UBS shares declined in Zurich, trading down 0.75% at 4:47 p.m.

Swiss and EU authorities were both set to roll out the rules in January, with the US and UK set to follow six months later, as part of a wider update of bank capital requirements designed to shore up the industry known as Basel III. Yet uncertainty over how and when the US will apply them has led the EU to plan a one-year delay in the new standards for the trading book,because that business is global in nature.

UBS had made the case that, without a pause, it would be one of very few major global banks forced to adopt the trading rules in January 2025, people familiar with the matter told Bloomberg. Switzerland’s other systemically important banks — Raiffeisen Group, Zuercher Kantonalbank, and PostFinance — have a much lower international presence than UBS.

The Swiss Bankers Association said it was “irritated” by the council’s decision and that the country is “forging ahead without need.”

“It is putting the Swiss financial center at a disadvantage by weakening its competitiveness compared to other international and important financial centers,” the lobby group said in an email to Bloomberg. 

Behind Schedule

Higher capital requirements increase the financial reserves that banks have on hand to absorb losses, but impact profitability. 

Authorities were due to implement the wider package some seven years after the measures were agreed by regulators on the Basel Committee on Banking Supervision as the final part of rule-making designed to prevent a repeat of the 2008 financial crisis. The implementation is already substantially behind the original schedule.

The topic has since become a political flash-point in the US and authorities are still fighting over what version of the wider package of measures, known in that country as Basel III Endgame, to agree on. They won’t implement the new rules before the middle of next year at the earliest.

UBS is already facing substantially higher demands for financial reserves as a result of its larger size following the takeover of Credit Suisse. In addition, the Swiss government is pushing for a revamp of the way the bank prepares for potential losses in its foreign holdings. Those changes could see its capital requirement rise by as much as $25 billion.

The new Basel rules will increase UBS’s risk-weighted assets by around $15 billion from 2025, with much of that impact expected to come from the trading rules, the lender said in February. The firm had $78.1 billion of highest quality capital and $526.4 billion of risk-weighted assets at the end of March, its filings show.

 

–With assistance from Allegra Catelli, Bastian Benrath and Myriam Balezou.

(Updates with comment from banking lobby in sixth paragraph)

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