On Friday, Switzerland unveiled a series of reforms aimed at strengthening the security of its largest bank, UBS, with the aim of preventing another financial crisis. However, these measures are likely to curb the international ambitions of the group, whose financial power far exceeds that of the Swiss economy.

UBS found itself the sole representative of major Swiss banks after the emergency bailout of Credit Suisse in 2023.

Long considered the weakest link amongst European banks, Credit Suisse finally fell victim to a serious crisis of confidence in March 2023. Against the backdrop of a crisis amongst US regional banks, investors were concerned about the repercussions for the most fragile players in the banking sector.

Faced with the fall in Credit Suisse's share price (-30% on March 15), the government was finally forced to intervene and orchestrate its takeover by UBS. The rescue was announced by Karin Keller-Sutter, then finance minister and now president of the country.

More capital

"I don't think competitiveness will be affected, but it's true that growth abroad will become more expensive," she said, stressing that Switzerland would not be caught off guard by another banking crisis. She pointed out that the country had already experienced two major shocks, in 2008 and 2023, and that "if something doesn't work, it needs to be fixed."

In 2008, UBS was hit hard by the subprime crisis, recording significant losses on risky mortgage loans and writing off tens of billions of dollars. The government had to step in to save it. This collective memory remains vivid and today fuels the political will to better regulate the banking sector.

The new regulatory framework requires UBS to increase its capital reserves to cover the risks associated with its international operations. At this stage, UBS must hold capital to cover 60% of its holdings in a foreign subsidiary. The government wants to increase this requirement to 100%. This adjustment could require up to $26bn in additional capital.

This prospect will weigh on the group's profitability. This regulatory uncertainty is already hurting the stock's performance. UBS shares are expected to break even in 2025, while most European banks are rising sharply thanks to strong earnings momentum, attractive valuations, and hopes for consolidation in the sector.

Competitiveness affected

The bank's response was swift. Colm Kelleher, UBS chairman, and CEO Sergio Ermotti warned in an internal memo that these requirements could harm the bank's global competitiveness and weaken the Swiss economy.

According to Andreas Venditti, an analyst at Vontobel, the group's strategy may need to be revised: "UBS may have to change its growth strategy in the US and Asia." He believes that these new rules not only penalize future growth, but also make existing operations more expensive, thereby encouraging a reduction in the size of the bank.

UBS has consistently argued that this regulatory tightening would affect its position vis-à-vis its international competitors. In particular, it points to the valuation gap with US banks.

The bank therefore strongly contests the "extreme increase" in capital requirements. But some experts, such as Hans Gersbach, professor at ETH Zurich, believe that the problem goes far beyond the current rules. "The credibility of the too-big-to-fail regime remains in question," he warns.

Indeed, the rescue of Credit Suisse has led to the creation of an even more systemic player, with $5.9 trillion in assets under management.