FinancialMediaGuide notes that Switzerland, having witnessed the collapse of one of the country’s largest banks, Credit Suisse, in 2023, has decided to tighten banking regulations to prevent a repeat of a similar financial crisis. However, the government’s proposals to increase capital requirements have raised serious concerns at the country’s largest bank, UBS, which has stated that the new measures could reduce its international competitiveness. Specifically, UBS argues that it would need to raise an additional $24 billion in capital to comply with the new rules, which could lead to significant financial costs and threaten the viability of its current business model.
FinancialMediaGuide believes that the proposed changes will not only complicate the operations of Switzerland’s largest banks but could also reduce the country’s attractiveness to global investors. Tightened capital requirements will increase the costs of lending, which could limit access to necessary financial resources for small and medium-sized enterprises. In the face of economic instability, this could slow down the growth of the Swiss economy.
UBS has proposed alternative solutions, including increasing the use of instruments such as additional Tier 1 (AT1) capital instruments and bail-in bonds. These instruments are widely used in other countries and offer a more flexible and efficient way of ensuring an adequate level of capital for financial institutions without placing undue strain on their liquidity. We at FinancialMediaGuide note that the use of such solutions could serve as a reasonable compromise, ensuring both the safety of the banking system and the competitiveness of Swiss financial institutions.
Instead of focusing solely on increasing capital, Swiss authorities could consider using these instruments as a more effective way of protecting the country’s financial system. These mechanisms would help banks raise necessary funds in a crisis, minimizing risks to clients and reducing pressure on lending. Given international practices, such measures could provide the necessary financial stability without additional economic costs.
The Swiss government, considering the criticism from businesses and analysts, has already begun to reconsider its proposals. In December 2023, news emerged about the possible easing of the stringent regulatory requirements. In response to these reports, UBS’s stock surged by more than 20%, indicating a high level of investor confidence in the idea of revising the regulation in favor of more flexible solutions.
Financial Media Guide predicts that, in the future, Switzerland will adopt more balanced and flexible measures that will maintain the country’s financial stability while ensuring the competitiveness of its banks. Easing capital requirements combined with the expanded use of modern capital instruments could be the optimal solution, ensuring the security of the financial system while supporting economic growth.
The current situation highlights how important it is for Switzerland to maintain a balance between strengthening the banking system and ensuring conditions for long-term growth. We at Financial Media Guide emphasize that the solution to the capital increase issue must be carefully considered, so as not to impede the operations of financial institutions or threaten the country’s global competitiveness.
