UBS increasing capital by $25 bln is right level, say Swiss authorities

By Justin Cash

The comments mark the latest in a war of words between the industry and regulators over how to shore up banks

Forcing UBS to hold some $25bn more in capital would be the "right" level, according to Swiss lawmakers.

Earlier in April, local authorities outlined plans for more robust capital requirements on the Swiss lender, estimating at least $15bn more in reserve was needed to secure what is now the country's key banking asset.

Swiss finance minister Karin Keller-Sutter told the Tages-Anzeiger newspaper on 15 April that "it's true, the sizes are plausible".

The comments mark the latest in a war of words between the industry and regulators over how to shore up UBS (CH:UBSG) (ES:UBS)and other global banks before another crisis strikes.

UBS chair Colm Kelleher told local newspaper NZZ in March that "if you have too much capital, you punish the shareholders, but also the customers, because banking services become more expensive".

Before Credit Suisse's collapse last March, the Swiss National Bank reassured investors that the bank was going above and beyond its capital requirements. However, in a report marking a year since its rescue, the SNB questioned whether Credit Suisse's Common Equity Tier 1 capital was "of a high enough quality".

Global banks, particularly in the US, have vocally pushed back against incoming Basel 3.1 rules that could see their capital requirements increase by 20%, placing a particular focus on trading divisions and whether banks are holding enough in reserve to offset emerging operational and credit risks.

The pushback, which has included unprecedented television advertising campaigns, has significantly increased the chances of US regulators watering down their proposals, Reuters reported in March, citing industry leaders and top regulators.

The Prudential Regulation Authority, part of the Bank of England, said in its business plan on 11 April that implementing Basel 3.1 would be "a major priority this year".

The PRA, which thinks the rules will have a "limited" impact on UK bank capital, will publish policy statements on the remaining parts of the packaging - which include credit risk, the so-called output floor, reporting, and disclosure requirements - in the second quarter, before a transition period starts in July 2025.

The output floor aims to standardize how banks calculate their capital needs, moving away from reliance on internal models. An analysis published on 11 April by the European Banking Authority found "a relatively low dispersion in the initial market valuation" of most instruments across EU institutions, and "a decrease in the dispersion in the value at risk submissions" compared with the previous year.

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04-16-24 0610ET

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