Swiss Government Mandates UBS to Hold 260 Billion in Core Capital

In a significant move to bolster the financial stability of its banking sector, the Swiss government has introduced stringent new capital regulations targeting UBS, following its acquisition of the troubled competitor Credit Suisse in 2023. The new rules mandate that UBS must hold an additional 260 billion in core capital, a measure aimed at fortifying the bank's financial resilience.

The regulations also stipulate that UBS must fully capitalize its overseas subsidiaries and reduce the scale of its stock buybacks. The Swiss Federal Government, in a statement released on Friday, clarified that the increase in the ongoing capital requirement would be met by raising up to 260 billion in Common Equity Tier 1 (CET1) capital. This move is expected to result in a reduction of approximately 80 billion in Additional Tier 1 (AT1) bonds held by UBS.

The Swiss National Bank has expressed its support for the government's measures, stating that these regulations will "significantly enhance" UBS's risk-bearing capacity. The central bank further elaborated that the new rules are designed to lower the likelihood of major banks, such as UBS, facing financial distress. By strengthening the bank's ability to stabilize itself during crises, the regulations aim to reduce the need for government intervention in future financial emergencies.

Analysts view these new capital requirements as a proactive step by the Swiss government to prevent another financial crisis. By mandating higher capital reserves, the government is ensuring that UBS has a robust financial cushion to absorb potential shocks. This move is particularly crucial given the systemic importance of UBS within the global financial landscape. The reduction in stock buybacks and the full capitalization of overseas subsidiaries are additional measures to enhance the bank's financial health and operational stability.

The Swiss government's decision to impose these stringent regulations on UBS underscores its commitment to maintaining a stable and resilient banking sector. By requiring UBS to hold additional core capital and fully capitalize its overseas operations, the government is taking proactive steps to mitigate risks and ensure the bank's long-term sustainability. These measures are expected to bolster investor confidence and contribute to the overall stability of the financial system.