The head of Switzerland’s financial watchdog, FINMA, has expressed support for UBS Group AG’s offer to limit the size of its investment bank, signaling a potential compromise in the ongoing debate over future capital requirements for the country’s largest lender, Bloomberg reports.
“UBS has said that it would limit the size of the investment bank as a proportion of risk-weighted assets,” FINMA Chief Executive Officer Stefan Walter stated at a press conference on Tuesday. “We welcome that of course.”
The statement comes as Switzerland’s parliament prepares to discuss legislation that could impose up to $25 billion in new capital demands on UBS, a prospect the bank has strongly criticized. In response, UBS executives have floated the idea of enshrining the investment bank cap into Swiss law, according to previous reports. The unit currently operates under a self-imposed limit of 25% of the lender’s risk-weighted balance sheet.
The proposal may ease concerns that high-risk investment banking activities, such as trading, could lead to a crisis requiring a state bailout. The investment bank of Credit Suisse, which UBS acquired in a government-brokered rescue in 2023, suffered multi-billion-dollar losses in 2021 following the collapse of Archegos Capital Management. The Credit Suisse failure highlighted the systemic risks associated with large investment banks.
UBS’s balance sheet is now more than twice the size of the Swiss economy, further amplifying concerns about its potential impact on the nation. Notably, UBS itself was rescued by the Swiss government in the wake of the 2008 financial crisis.
While limiting the size of the investment bank is seen as a positive step, Walter emphasized that risks extend beyond this sector.
“It’s also important to understand that risks can come not just from investment banking but also mainly from non-financial risks,” he said, citing money laundering, sanctions, conduct, and cybersecurity as key areas of concern.
The Swiss government maintains that it is not negotiating with UBS regarding the specifics of the upcoming legislation, which could take until 2028 or later to be implemented.
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