According to a report by news agency Reuters on Tuesday, members of both the National Council and the Council of States are working on a compromise proposal regarding the planned changes to capital requirements for globally active systemically important banks. In Switzerland, this category currently includes only UBS.

According to sources familiar with the discussions, a proposal is being considered under which UBS would be required to back its foreign subsidiaries with common equity tier 1 (CET1) capital of only 70 to 80 percent. Such a move would reduce the bank’s regulatory burden by several billion dollar.

How Much Additional Capital Will Be Needed?

The draft amendment to the Banking Act presented by the Federal Council in April calls for a full 100 percent capital backing of foreign subsidiaries. According to the report, lowering the requirement to 80 per cent would translate into an additional CET1 capital requirement of approximately 15 billion dollar. The government estimates that its original proposal would require UBS to raise around 20 billion dollar in additional CET1 capital.

UBS has criticised the proposed regulatory package as «extreme», arguing that it would weaken the bank’s international competitiveness and lead to higher funding costs and, ultimately, higher borrowing costs for clients.

Parliamentary Deliberations to Resume in August

In December, the economic affairs committees of both parliamentary chambers had already floated a separate compromise proposal that would require a CET1 backing ratio of at least 50 per cent. The issue was also debated during a marathon hearing last month, when senior government officials and UBS executives faced parliamentarians in a heated session in Bern.

At the beginning of May, the Economic Affairs and Taxation Committee of the Council of States (EATC-S) postponed a decision on the Banking Act revision. The committee stated that it wanted to discuss alternative approaches to the Federal Council’s proposal. Deliberations are scheduled to continue in August.

Link to AT1 Capital and PLB Fee?

According to Reuters’ sources, various options are also being discussed to link the new rules to requirements for Additional Tier 1 (AT1) capital and to a fee that UBS would pay for access to the Public Liquidity Backstop (PLB).

Ultimately, the sources said, a compromise will need to strike a balance between safeguarding UBS’s interests and being robust enough to secure approval in a parliamentary vote.