Swiss government backs tougher rules for banks, causing UBS shares to drop

By Louis Goss

Switzerland's government on Wednesday put forward plans that would see the country's top banks subject to new rules aimed at preventing a repeat of the crisis that crashed Credit Suisse in March 2023, in an announcement that caused UBS shares to drop.

In a 209 page document, Switzerland's Federal Council recommended a package of 22 measures that could see new limits placed on bankers' bonuses and see banks forced to keep more capital on their books to prevent another crash.

If approved, the 22 measures could also see greater powers and more resources given to Switzerland's banking regulator, FINMA, and see systemically important banks including UBS subject to stricter corporate governance rules.

Shares in Switzerland's top bank UBS (UBS) (CH:UBSG) fell 4% following publication of the document on Wednesday, after gaining 40% over the previous 12 months during which it acquired its main rival Credit Suisse in June 2023 as part of a state-backed rescue deal.

UBS currently holds $1.7 trillion in assets on its balance sheet, meaning a crisis similar to the one that resulted in the collapse of Credit Suisse could have major implications for Switzerland's economy, which generated a gross domestic product just more than $800 billion per annum.

In an explanatory note, the Swiss government said it is aiming for a "significant increase" in capital requirements at top banks, while holding back from giving a specific figure, as it said the new rules would likely have a significant impact on UBS.

In relation to bankers bonuses, the Federal Council said it has no plans to impose hard caps on bonuses themselves, but instead said remuneration should be linked to banks' long-term economic successes and that they should be clawed back if those institutions fail.

The Swiss government document said a further seven measures should be subject to additional examination, including plans to let FINMA impose monetary fines on the country's banks in a shift that would give it similar powers to those held by other major regulators.

The Federal Council, however, ruled out plans to impose limits on customers' abilities to make withdrawals and rejected plans to increase protections for depositors that would see higher value deposits insured by the Swiss state.

Switzerland's government also ruled out plans that would let the Swiss state take temporary control of banks during financial crises, rejected plans to impose limits on the extent to which banks are able to grow, and ruled out plans to create a "resolution fund" for bailouts.

-Louis Goss

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04-10-24 1015ET

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