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SVP lawmaker proposes capping UBS investment bank at 30%

of

total business

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UBS faces stricter rules after acquiring Credit Suisse

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Critics doubt 30% cap will enhance banking safety

By Ariane Luthi

ZURICH, March 26 (Reuters) - One of Switzerland's main

political parties could soon propose capping UBS's

investment banking activities as part of a regulatory overhaul

aimed at making the sector less risky, a senior lawmaker said on

Wednesday.

The right-wing Swiss People's Party (SVP), the biggest group

in parliament, would pitch the plan as soon as possible if the

government proposed that UBS fully capitalize its foreign units,

SVP lawmaker Thomas Matter said.

Limiting the investment bank could be a way of reducing the

amount of extra capital UBS would need to hold, he said.

"I will propose that investment banking may account for a

maximum of 30% of the total business of a systemically important

bank and that the business areas are taken into account in the

risk weighting," Matter told Reuters.

Reuters reported this week that UBS has floated the idea of

capping the size of its investment bank as one concession it is

considering to try to reduce the amount of capital it might have

to stump up under government proposals now expected in early

June.

Responding to that report, a UBS spokesperson said on

Tuesday it supported in principle the government's efforts to

strengthen financial stability provided they did not put

disproportionate burdens on the institution.

UBS has been facing tougher regulation since it acquired

Credit Suisse after its old rival collapsed in 2023, leaving

Switzerland with just one major global bank.

The enlarged bank has a balance sheet bigger than the Swiss

economy and authorities want to avoid another meltdown by

imposing stricter rules. These focus on the amount of capital

UBS must hold to contain the potential risk to taxpayers.

Financial market regulator FINMA and the Swiss National Bank

have backed making UBS fully capitalize its foreign units.

UBS CEO Sergio Ermotti has pushed back against saddling the

bank with a heavier capital burden. He argues the lender is

already well capitalized and that excessive regulation would put

both UBS and Switzerland at a disadvantage.

Matter said that while UBS is "much safer than it was before

the financial crisis", the new legislation would need to be

effective well beyond Ermotti's tenure at the bank to ward

against potential mismanagement in the future.

Excluding non-core and legacy assets, the investment bank

accounted for about 21% of UBS's risk-weighted assets at

end-2024, which would still allow some room for growth.

But the division accounted for nearly two-thirds of such

assets in 2008, when UBS needed a government bailout, an

experience that weighs on Swiss public debate about regulation.

Some critics of the power UBS wields in Switzerland are

sceptical that a 30% cap on its investment bank would do much to

make the banking landscape significantly safer.

"I don't think much of limiting investment bank activities

instead of ensuring adequate capital backing for the parent

firm," said Aymo Brunetti, economics professor at the University

of Bern. "Nobody knows where the risks will be in the future."

As debate continues on how far the new regulations should

go, the finance ministry said it is planning a cost-benefit

analysis of higher capital requirements on UBS.