ZURICH, June 3 — The Swiss government is expected this week to unveil strict new capital regulations for UBS, in response to the 2023 collapse of Credit Suisse. The proposal is likely to spark a lengthy political debate as lawmakers weigh how to prevent another major banking failure.

UBS acquired its troubled rival Credit Suisse in March 2023 at a fire-sale price, following a series of scandals that eroded confidence in Switzerland’s second-largest bank. The shock prompted widespread calls for stronger oversight of systemically important financial institutions.

A key part of the government’s “too big to fail” strategy focuses on how much capital UBS should be required to hold in its foreign subsidiaries to limit risk. The answer is expected to come on Friday when the federal cabinet presents its recommendations.

Analysts, lawmakers, and UBS itself believe the government will call for full capitalisation of foreign units—despite pushback from the bank. “The market would be surprised if the federal cabinet did not demand 100% capitalisation,” said Vontobel analyst Andreas Venditti, noting UBS’s current market undervaluation relative to peers.

UBS estimates that meeting such a requirement would require it to raise over $20 billion in additional capital. CEO Sergio Ermotti has warned that this would harm the bank’s global competitiveness and benefit international rivals. “The winners will be our competitors outside Switzerland,” he said at an event in Lucerne.

However, both the Swiss National Bank and the country’s financial regulator, FINMA—under scrutiny for their handling of the Credit Suisse crisis—support full capitalisation.

UBS has considered several options to soften the impact, including lobbying for compromises and even exploring the idea of relocating its headquarters abroad, though executives insist there are no current plans to do so.

Many believe the initial proposal will be tough, but will be watered down during parliamentary negotiations. Final legislation isn’t expected before 2027.

Potential Shift in UBS’s Global Strategy

If the capital rules are enacted in their strictest form, they could force UBS to rethink its business model, which currently emphasizes expansion in the U.S. and Asia.

“UBS will have to shift from a growth strategy to one focused on cost and risk-weighted asset optimization,” said Antonio Roman, a portfolio manager at Axiom Alternative Investments.

The bank says that full capitalisation would raise its Common Equity Tier 1 (CET1) ratio requirement to 17–19%, far higher than competitors like Deutsche Bank (11.2%) and Morgan Stanley (13.5%).

A parliamentary inquiry noted that UBS now has a balance sheet larger than the Swiss economy, emphasizing the need to address the risks posed by its foreign subsidiaries. “In Switzerland, this issue is especially important given the scale of UBS’s U.S. unit relative to the parent company,” said Neil Esho, Secretary General of the Basel Committee on Banking Supervision.

Banking experts expect a gradual implementation process, with a phase-in period extending into the 2030s. “Such a large adjustment can’t happen overnight,” said Hans Gersbach, economics professor at ETH Zurich. “If rushed, it could be more destabilizing than stabilizing.”