Swiss Party Pushes for UBS Investment Bank Cap

In the heart of Zurich, the Swiss People's Party (SVP) is making waves with a bold proposal to cap UBS's investment banking activities at 30% of its total business. This move comes as a response to the acquisition of Credit Suisse, which has left Switzerland with just one major global bank and raised concerns about financial stability. The SVP's plan is a double-edged sword, aiming to reduce the bank's risk exposure while potentially curbing its growth and innovation.

The backdrop to this drama is the 2023 collapse of Credit Suisse, a watershed moment that left Switzerland with just one global lender. The acquisition by UBS created a banking giant, but it also raised the stakes for regulators. The enlarged bank has a balance sheet bigger than the Swiss economy, and authorities are determined to avoid another meltdown by imposing stricter rules. These rules focus on the amount of capital UBS must hold to contain the potential risk to taxpayers.



The SVP's proposal is not without its critics. Some argue that a 30% cap on investment banking activities will do little to enhance banking safety. Aymo Brunetti, an economics professor at the University of Bern, questions the effectiveness of the cap, stating, "I don't think much of limiting investment bank activities instead of ensuring adequate capital backing for the parent firm. Nobody knows where the risks will be in the future."

The debate over the 30% cap raises questions about the bank's future growth prospects. While the investment bank accounted for about 21% of UBS's risk-weighted assets at the end of 2024, allowing some room for growth, the experience of needing a government bailout in 2008 when the division accounted for nearly two-thirds of such assets weighs heavily on public debate about regulation. This historical context suggests that while a 30% cap might provide some stability, it could also limit the bank's ability to innovate and expand in a rapidly evolving financial landscape.

The potential long-term implications of stricter capital requirements on UBS's ability to innovate and expand its services are significant. One of the key concerns is that excessive capital demands could depress the bank's shares and make it a takeover target. As noted, "UBS makes most of its profits managing money for the wealthy, but if it is saddled with excessive capital demands, it could depress the bank's shares and make it a takeover target, according to two people familiar with the lender's concerns." This suggests that the bank's ability to invest in new technologies, services, and markets could be compromised, as it would need to allocate more resources to meeting regulatory requirements rather than innovation.

The potential for UBS to move its headquarters abroad if faced with excessive demands highlights the risk of losing key talent and resources. As mentioned, "Last month's government decision to make parliament responsible for the new rules opened the door for UBS to lobby lawmakers into taking the sting out of regulation even as the industry stirs the threat the bank could disappear." This indicates that the bank might consider relocating to a more favorable regulatory environment, which could have long-term implications for its ability to innovate and expand within Switzerland.

The debate over the 30% cap on investment banking activities raises questions about the bank's future growth prospects. While the investment bank accounted for about 21% of UBS's risk-weighted assets at the end of 2024, allowing some room for growth, the experience of needing a government bailout in 2008 when the division accounted for nearly two-thirds of such assets weighs heavily on public debate about regulation. This historical context suggests that while a 30% cap might provide some stability, it could also limit the bank's ability to innovate and expand in a rapidly evolving financial landscape.



In summary, the proposed 30% cap on UBS's investment banking activities could limit the bank's growth potential, reduce its profitability, and make it less competitive compared to its global peers. The cap could also constrain UBS's strategic flexibility, potentially leading to a loss of market share and reduced profitability. The potential long-term implications of stricter capital requirements on UBS's ability to innovate and expand its services are significant, particularly in the context of a rapidly evolving financial landscape. One of the key concerns is that excessive capital demands could depress the bank's shares and make it a takeover target. The potential for UBS to move its headquarters abroad if faced with excessive demands highlights the risk of losing key talent and resources. These factors could have long-term implications for the bank's competitiveness and growth in the financial sector.