Too Big to Fail: Swiss Financial Behemoth UBS May Require Up To $25 Billion for Regulatory Compliance!

UBS agrees to take over struggling Credit Suisse
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In the wake of its compulsory acquisition of Credit Suisse last year, UBS, Switzerland’s largest banking institution, might need up to $25 billion to meet new regulatory standards. These changes aim to fortify the resilience of large banks, ensuring that they can withstand financial tumult without jeopardizing the national economy. The merger created a financial giant with assets surpassing twice the GDP of Switzerland.

By the close of 2023, the combined UBS and Credit Suisse entity boasted total assets amounting to $1,718 billion (CHF 1,733 billion), significantly overshadowing the Swiss GDP, which stood at CHF 771 billion.

Recognizing the potential risks of such a colossal financial institution, the Swiss government has proposed stringent capital regulations designed to curb UBS’s unchecked growth. The “Too Big To Fail” initiative encompasses 22 new measures aimed at enhancing the crisis-preparedness of the Swiss financial sector, with a particular focus on UBS.

Recent assessments suggest that UBS will need to secure an additional $10 to $15 billion over the coming years. However, this estimate was recently overshadowed by comments from Swiss Finance Minister Karin Keller-Sutter, acknowledging that UBS might need to bolster its capital by an additional $15 to $25 billion to meet the new regulatory standards.

Keller-Sutter highlighted that Credit Suisse‘s inadequate capital prevented it from timely divesting or closing its unprofitable U.S. investment banking operations. The reinforced regulations are set to make future growth more costly for UBS, underscoring the high stakes of maintaining adequate capital buffers.

Further tightening is on the horizon, as Keller-Sutter pointed out plans to increase the equity backing for foreign holdings by Swiss parent banks from the current 60% to a full 100%. This adjustment stems from past difficulties in dealing with international authorities during financial crises. A concrete proposal for this regulation is expected in the first quarter of 2025, after which stakeholders, including banks and financial institutions, will have an opportunity to voice their opinions before any final decisions are made.

The situation underscores a broader concern within Switzerland about the enormity of UBS. The prospect of UBS facing financial difficulties poses stark choices—either liquidation or nationalization. The latter would place the national budget at risk, considering the hundreds of billions of francs at stake.

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