2024-04-29 17:14:00
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The Federal Counsel wants more equity for UBS‘s foreign subsidiaries. The bank puts risks to taxpayers in perspective.
Does UBS need more equity to prevent a new banking crisis? The Federal Council thinks: yes. In the future, investments in major bank subsidiaries should be covered by up to 100 percent of their own funds.
In Eco-speak, Federal Councilor Karin Keller-Sutter repeats her demand: “So that the risk is not ultimately borne by the taxpayers and the state.” With more equity, a bank can be wound up better in an emergency.
According to a rough estimate, the additional equity capital of UBS would cost 15 to 25 billion francs. Finance Minister Karin Keller-Sutter does not confirm the number, but describes it as “plausible”.
Equity vs. competitiveness?
Recently Colm Kelleher, Chairman of the Board of Directors of UBS, described the importance of equity capital: “Some discussions regarding additional capital requirements are of great concern to us. Additional capital is the wrong way.”
In the case of risk, there are rules that banks don’t like to see.
Keller-Sutter says Switzerland should remain a competitive financial center. “The bank has to make sure that it has as much profit as possible and that it is attractive to investors.” But: “In the case of risk, there are rules that the banks don’t like to see, but we have a different role.”
The goal of the state is to limit the risk. This is also because UBS’s balance sheet is twice the size of Switzerland’s gross domestic product: “We have to take measures so that a solution can be found in the event of a crisis.”
The Federal Councilor confirms that this is probably not necessary in the short term. The bank is well located and managed. “But we have to prepare for what could happen in ten or 20 years and have the necessary instruments to intervene in a crisis and limit the damage to our country.”
Discussion about state guarantee
The Federal Counselor and UBS also do not agree whether the state would step in in the event of a crisis.
Sergio Ermotti is concerned about the discussion about the implied state guarantee. It is a “grossly false claim that UBS has an implicit government guarantee. “It is the shareholders, the holders of the AT1 instruments and the loss-absorbing TLAC bonds, who bear the risks of UBS, not the taxpayer,” said Ermotti.
UBS was “not too big to fail,” the bank’s management further declared. Economist Aymo Brunetti says in the Tages-Anzeiger: “That is absurd.”
Karin Keller-Sutter says: “If you accept that emergency liquidity would be mentioned in the event of a crisis, for example for the state to intervene, then you have to say that it is an implicit state guarantee.” If a bank were to be restructured or even liquidated, there would of course be risks for the state or taxpayers.
The UBS matter will keep the Federal Council and Parliament busy for some time. Concrete implementation packages for the proposed measures are to be delivered by mid-2025.
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