Key Takeaways:
A compromise could let UBS use cheaper AT1 debt to soften a draft bill that would otherwise force the bank to hold roughly $20 billion in extra top-quality capital.
A Swiss parliamentary committee meets Tuesday to debate capital rules that would force UBS to hold roughly $20 billion in additional Common Equity Tier-1 capital, with lawmakers split over whether to let the bank use cheaper debt to ease the burden.
"Without some risk, there's no business," said Hannes Germann, a committee member from the conservative Swiss People's Party, adding it was too early to say whether a deal would be struck on Tuesday.
The draft bill, drafted by the government after Credit Suisse's 2023 collapse, would require UBS to fully capitalize its foreign units at 100 percent, up from 60 percent now, with CET1 alone covering the requirement. A compromise under discussion would let UBS use Additional Tier 1 capital — cheaper to hold than CET1 but deemed less secure by regulators — to cover part of the burden.
The outcome determines how much capital UBS must lock up, with estimates ranging from $20 billion to $26 billion. If parliament backs the strictest version, the bank's aggressive share buybacks would likely be curtailed; a compromise could keep requirements within a more manageable range.
The capital debate
Much of the extra burden centers on the government's desire for UBS to fully capitalize its foreign subsidiaries with CET1, the highest-quality form of bank capital made up of retained earnings and common shares. The Federal Council submitted its final proposals on April 22, targeting amendments to both the Banking Act and the Capital Adequacy Ordinance, with a phased implementation starting at 65 percent stretched over seven years.
Thierry Burkart, a lawmaker of the centre-right Liberals, or FDP, who proposed enabling UBS to partly back the foreign units with AT1 capital, said he believed an agreement could be reached that balanced the bank's concerns and risks to taxpayers. "There will be adjustments on both sides, and perhaps a compromise can be found," he said, adding that it might involve legislating to make AT1 bonds more secure.
Parliamentary discussions have floated several compromise routes. One option would allow up to 50 percent of the CET1 requirement to be met with AT1 instruments instead. Another would reduce the CET1 requirements for foreign units to between 70 percent and 80 percent of the full amount.
What's at stake for UBS
UBS, which acquired its old rival Credit Suisse after its 2023 collapse, argues the burden is excessive, would weaken its competitive position and hurt Swiss banking. The bank has said the proposals lack alignment with international regulatory standards, meaning it would face stricter rules than competitors like JPMorgan or HSBC operating under their own national frameworks.
The stakes are unusually high because UBS's balance sheet dwarfs Switzerland's entire gross domestic product, leaving the country uniquely exposed to its largest bank's fortunes. UBS shares climbed to 17-year highs in December 2025, driven by optimism that lawmakers would land on a favorable compromise.
The reform effort traces back to March 2023, when Credit Suisse's implosion forced UBS into a government-brokered acquisition, leaving Switzerland with a single globally significant bank instead of two. Credit Suisse's AT1 holders learned the risks of the instruments firsthand when their $17 billion in bonds were wiped out during the rescue.
If lawmakers back the government's full proposal, the $20 billion to $26 billion price tag would force management to fundamentally rethink capital allocation. If parliament adopts a meaningful compromise, UBS could face higher requirements than today but within a more manageable range. Swiss parliamentary procedure also allows for further amendments and committee reviews, leaving a third possibility of another delay.
This article is for informational purposes only and does not constitute investment advice.
