BERN. UBS has won the first parliamentary round of the defining banking fight of this legislature. The economic affairs and taxation committee of the Council of States voted on Monday evening, by ten votes to two with one abstention, to let the bank cover half of the new capital demanded for its foreign subsidiaries with reworked AT1 bonds rather than with pure equity.
The recommendation, which now goes to the full upper house in the autumn session, departs from the Federal Council’s central demand: that Switzerland’s lone remaining global bank back its units abroad entirely with Common Equity Tier 1 capital, the highest quality and most expensive kind. The committee proposes instead a fifty-fifty split between CET1 and Additional Tier 1 instruments, debt that converts or is written down in a crisis.
The sums explain the heat. The government’s version would have obliged UBS to find roughly 20 billion dollars of extra capital, a figure the bank says would cost it hundreds of millions a year and dull its competitiveness against American rivals. Under the committee’s formula, UBS could broadly hold its current CET1 level and raise the rest in AT1 paper.
The committee wrapped the concession in a safeguard aimed squarely at the memory of March 2023, when Credit Suisse’s AT1 holders were wiped out while shareholders took something away. The trigger at which the new bonds bite would rise from around 7 per cent to about 11 per cent of the CET1 ratio. Below that line, UBS would have to suspend dividends and share buybacks, stop coupon payments on the AT1s and cut the bonus pool unless the capital base is rebuilt within a set time.
“What was undisputed for all of us was that we want a tightening,” committee chairman Erich Ettlin told journalists in Bern. At the same time, he said, the committee wanted to make sure the economy does not suffer from excessive regulation. AT1s, he conceded, will be expensive. The majority, he said, sees the package as a compromise, not a gift to the bank.
That is not how it was read on Paradeplatz or in the finance ministry. Karin Keller-Sutter has invested considerable personal capital in the full equity solution, and Monday’s vote is a clear rebuff, delivered by a committee of her own camp’s upper house allies. The ministry has long argued that AT1s proved unreliable as loss absorbers in the Credit Suisse rescue precisely when they were needed.
UBS has argued the opposite case for two years: that full equity backing of foreign units is out of line with international practice, and that reformed AT1s with a high trigger and automatic payout blocks can do the work. On Monday a committee majority agreed. The bank said little in public, but its shares have tracked every leak from Bern for months, and investors will treat the vote as the shape of the final law.
The committee left one piece of the reform untouched for lack of time: the public liquidity backstop, the mechanism meant to let the state stand behind a stricken bank without repeating the improvised rescue of Credit Suisse. It returns to the agenda later in the autumn.
The calendar from here is long. The full Council of States takes up the bill in the autumn session, which runs from 14 September to 2 October, and the size of the committee majority makes substantial changes there unlikely. The National Council follows, and a final decision is possible at the end of the year at the earliest, more likely in 2027.
Behind the arithmetic sits the question Bern has circled since the emergency takeover three and a half years ago: how to make a bank with a balance sheet larger than the Swiss economy safe without making it ungovernable or unprofitable. The government answered with capital. Parliament’s first answer is cheaper money and a louder alarm bell. The two chambers now have to agree on which of those answers Switzerland can afford.