By Ariane Luthi
ZURICH (Reuters) -One of Switzerland’s main political parties could soon propose capping UBS’s investment banking activities as part of a regulatory overhaul aimed at making the sector less risky, a senior lawmaker said on Wednesday.
The right-wing Swiss People’s Party (SVP), the biggest group in parliament, would pitch the plan as soon as possible if the government proposed that UBS fully capitalize its foreign units, SVP lawmaker Thomas Matter said.
Limiting the investment bank could be a way of reducing the amount of extra capital UBS would need to hold, he said.
“I will propose that investment banking may account for a maximum of 30% of the total business of a systemically important bank and that the business areas are taken into account in the risk weighting,” Matter told Reuters.
Reuters reported this week that UBS has floated the idea of capping the size of its investment bank as one concession it is considering to try to reduce the amount of capital it might have to stump up under government proposals now expected in early June.
Responding to that report, a UBS spokesperson said on Tuesday it supported in principle the government’s efforts to strengthen financial stability provided they did not put disproportionate burdens on the institution. Reached on Wednesday for a response to Matter’s remarks, the spokesperson said the bank’s position was unchanged.
UBS has been facing tougher regulation since it acquired Credit Suisse after its old rival collapsed in 2023, leaving Switzerland with just one major global bank.
The enlarged bank has a balance sheet bigger than the Swiss economy and authorities want to avoid another meltdown by imposing stricter rules. These focus on the amount of capital UBS must hold to contain the potential risk to taxpayers.
Financial market regulator FINMA and the Swiss National Bank have backed making UBS fully capitalize its foreign units.
UBS CEO Sergio Ermotti has pushed back against saddling the bank with a heavier capital burden. He argues the lender is already well capitalized and that excessive regulation would put both UBS and Switzerland at a disadvantage.
Matter said that while UBS is “much safer than it was before the financial crisis”, the new legislation would need to be effective well beyond Ermotti’s tenure at the bank to ward against potential mismanagement in the future.
Excluding non-core and legacy assets, the investment bank accounted for about 21% of UBS’s risk-weighted assets at end-2024, which would still allow some room for growth.
But the division accounted for nearly two-thirds of such assets in 2008, when UBS needed a government bailout, an experience that weighs on Swiss public debate about regulation.
Some critics of the power UBS wields in Switzerland are sceptical that a 30% cap on its investment bank would do much to make the banking landscape significantly safer.
“I don’t think much of limiting investment bank activities instead of ensuring adequate capital backing for the parent firm,” said Aymo Brunetti, economics professor at the University of Bern. “Nobody knows where the risks will be in the future.”
As debate continues on how far the new regulations should go, the finance ministry said it is planning a cost-benefit analysis of higher capital requirements on UBS.
(Reporting by Ariane LuthiEditing by Dave Graham, William Maclean)
