UBS Among Swiss Banks Seeking Delay of Basel Trading Rules

This content was published on June 19, 2024 - 13:06

5 minutes

(Bloomberg) — Swiss banks including UBS Group AG are pressing the government to postpone global capital rules for their trading businesses, to avoid being disadvantaged after the European Union decided on a delay.

Switzerland is set to decide by the end of July on whether to also push back its implementation date. While several domestic lenders favor waiting, UBS also makes 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 said, who asked not to be named as the interactions are private.

Switzerland’s other systemically important banks — Raiffeisen Group, Zuercher Kantonalbank, and PostFinance — have a much lower international presence than UBS.

Authorities in the EU were set to roll out the rules on Jan. 1, 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 already led the EU to plan a one-year delay in the new standards for the trading book because that business is global in nature.

The Swiss Bankers Association “is in favor of deferral of at least the market risk part for the Basel III regulation in Switzerland,” said Markus Staub, head of prudential regulation at the body, referring to the trading part of the rules. “This would ensure a level playing field for Swiss banks with the European Union.”

The industry group is “in constant communication with our members as well as the Swiss authorities” and talks about the matter have taken place “in the last few days,” he said.

However, Swiss banking supervisor Finma is less willing to see a postponement, as the country is engaged in a major regulatory overhaul in the wake of the collapse of Credit Suisse last year, some of the people said. The decision is ultimately the government’s, and political considerations will play a role, the people said.

Representatives for UBS, Finma and the State Secretariat for International Finance — which is responsible for the Basel III regulation in Switzerland — declined to comment.

“This is about avoiding a competitive disadvantage and the impact on banks’ profitability,” Martin Neisen, a partner at PWC in Germany, said in an interview last week. “If European banks can’t do this business, the US competitors will step in.”

The more complex or exotic securities, the higher the capital requirements will be, he said. That’s why the effect is “higher for large banks with complex trading portfolios,” he said.

UBS is currently engaged in winding down substantial activities held in Credit Suisse’s former investment bank. A delay would also allow UBS to make more progress in that task before the stricter capital standards apply, one of the people said. Regulators applying the rules as planned would increase pressure to get rid of them more quickly.

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 nation’s largest 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 most of that impact expected to come from the trading rules, the lender said on its fourth-quarter earnings call.

“There are other Swiss banks apart from UBS which would see an impact on their trading books if the rules are implemented too early,” the SBA said.

The EU, like Switzerland, was 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 delayed introduction of stronger capital buffers to absorb banks’ market risk losses and improve protection for their creditors is credit negative,” Moody’s Ratings said in a report on Wednesday. “The EU’s delay also casts doubt about whether regulators will be able to implement Basel III in a timely and consistent way.”

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.

(Updates with comment from Moody’s in 16th paragraph)