UBS versus Switzerland: when a bank becomes too big for its country
There is a delicious irony developing in Switzerland. The country that spent generations building its reputation around the strength, discretion and stability of its banks now finds itself arguing with its largest bank over whether making that bank safer will make it weaker.
At the centre of the argument is UBS, the institution that Switzerland turned to when Credit Suisse collapsed in 2023 and which, by swallowing its great rival, created the very problem the Swiss authorities are now trying to solve. Switzerland rescued its banking system by creating an even bigger bank, and the question today is whether UBS has become too big to fail, too big to regulate or, more provocatively, too big for Switzerland.
That last question matters because UBS has allowed the possibility of leaving Switzerland to hang over the debate.
How did we get here?
Well, the reason for all of this is Credit Suisse, because Switzerland has already discovered what happens when a supposedly well-capitalised global bank loses the one form of capital that regulators cannot manufacture: trust.
Credit Suisse did not collapse because of one bad trade or one rogue banker, but through years of strategic confusion, management failures, weak risk controls and repeated scandals, from Greensill to the $5 billion-plus Archegos disaster, which steadily destroyed confidence among clients, investors and markets.
FINMA concluded that the bank still met its regulatory capital requirements, yet those requirements could not stop a crisis of confidence as the bank suffered a digital bank run with customers withdrawing money at extraordinary speed.
By March 2023, Credit Suisse was approaching the point where it could not survive through its own efforts, leaving the Swiss authorities with the prospect of restructuring, nationalisation or finding another bank willing to take it over. They chose UBS because it was the fastest and least risky way to stop the crisis spreading through Switzerland and the global financial system, effectively creating today’s UBS giant as the price of preventing yesterday’s Credit Suisse disaster.
The problem that has created is that UBS is now twice the size and too systemic which caused the Federal Council to review the rules and conclude that systemically important banks with foreign subsidiaries should fully back those overseas investments with Common Equity Tier 1 (CET1) capital at the Swiss parent.
Basically, they asked UBS to massively increase their Tier 1 Capital ratio.
Today UBS only has to cover part of those foreign participations in this way but the government’s proposal takes that coverage to 100%, based on the simple proposition that if UBS gets into trouble, the Swiss parent must be strong enough to absorb losses abroad and dispose of foreign subsidiaries without destabilising the bank at home.
According to the Federal Council’s April 2026 calculations, the package would strengthen UBS’s parent-level CET1 capital by around $20 billion, although the immediate shortfall would have been closer to $9 billion had the regime applied at the beginning of 2026. The government argues that the resulting group CET1 ratio of around 15.5% would remain comparable with international peers.
UBS sees the numbers differently. Depending on which elements and assumptions are included, figures of $20 billion, $23 billion, $24 billion and as much as $26 billion have appeared throughout the debate. UBS’s own commissioned economic work estimated around $23 billion of additional CET1 and annual additional costs of roughly $1.7 billion.
That is where a technical argument about bank capital turned into a political battle.
UBS says Switzerland is punishing the bank that saved it
UBS accepts stronger regulation after Credit Suisse, but argues that forcing it to hold vastly more expensive CET1 capital against overseas subsidiaries goes far beyond international standards and puts the bank at a structural disadvantage against American and European competitors.
UBS describes the government’s proposal as “extreme” and argues that regulation should be targeted, proportionate and internationally aligned.
There is a powerful argument behind that position as capital is not free.
If UBS must fund businesses with substantially more equity than JPMorgan, Goldman Sachs, Morgan Stanley or other international competitors, its returns on equity will fall unless it raises prices, cuts costs, reduces capital-intensive businesses or shifts activities elsewhere. Investors then ask why they should own UBS rather than a competitor operating under a more favourable capital regime.
UBS therefore sees the Swiss government’s proposal as solving yesterday’s Credit Suisse problem by creating tomorrow’s competitiveness problem.
The Swiss authorities see precisely the opposite which is who carries the risk when a gigantic Swiss bank fails?
Credit Suisse answered that question rather brutally. Whatever capital ratios, resolution plans and regulatory assurances existed before March 2023, when confidence disappeared the Swiss state had to intervene and UBS had to take over its rival.
The Federal Council, Swiss National Bank and FINMA therefore support stronger capitalisation because the downside of being wrong is not a disappointing quarterly return. It is another systemic banking crisis in a country whose largest bank is enormous relative to the domestic economy. The Federal Council explicitly says the purpose of the reforms is to reduce the risks to Switzerland, the state and taxpayers.
The Swiss National Bank (SNB) has gone further in challenging UBS’s competitiveness argument.
SNB Vice Chairman Antoine Martin argued this week that robust capital does not condemn a bank competitively and pointed out that strongly capitalised banks emerged from previous crises able to acquire weakened rivals and take market share.
In other words, UBS says more capital makes us weaker; the SNB says more capital makes you stronger when it matters.
Both arguments have merit, but they are answering different questions. UBS is optimising shareholder returns and international competitiveness. Switzerland is optimising systemic survival.
And then UBS played the American card.
What if UBS simply leaves Switzerland and relocates?
In September 2025 reports emerged that UBS executives had discussed the possibility of moving the group’s headquarters to the United States, potentially alongside an acquisition or combination with an American institution. UBS did not confirm such plans and has since insisted that it has never threatened to leave Switzerland, while Sergio Ermotti has publicly emphasised the bank’s desire to remain successful from its Swiss base.
Nevertheless, once relocation enters the conversation it changes the negotiation.
The implicit message is obvious: if Switzerland regulates UBS as though it is an exceptional Swiss systemic risk while UBS competes as an international bank, perhaps UBS should become an international bank headquartered somewhere else.
That would be an extraordinary outcome. Switzerland effectively created today’s UBS by facilitating the rescue of Credit Suisse, only to regulate the resulting giant so heavily that the giant considers whether Switzerland remains the right home.
Equally, the threat cuts both ways.
Moving UBS would involve years of regulatory, legal, operational and political upheaval, while sacrificing part of the Swiss identity that remains embedded in the UBS brand. Even people familiar with the debate have questioned whether relocation is credible rather than just negotiating leverage.
This is therefore less a question of UBS packing the furniture and moving to New York tomorrow than a warning about the limits of national regulation in global banking.
So this week what is interesting is that we now see a compromise.
The latest developments suggest that the confrontation is moving towards the place most banking arguments eventually reach: a complicated instrument that allows everyone to claim victory.
That instrument is called Additional Tier 1 capital, or AT1.
AT1 bonds sit between conventional debt and equity and are designed to absorb losses when a bank runs into serious trouble. They are also cheaper for UBS than raising and holding equivalent amounts of CET1 equity, which makes them an obvious candidate for bridging the gap between the government’s demand for greater loss-absorbing capacity and UBS’s demand for economically viable regulation.
The problem is that Switzerland has some history here.
During the Credit Suisse rescue, around CHF16 billion ($20 billion) of AT1 bonds were written down while shareholders still received value through the UBS takeover, creating enormous controversy around how these instruments work in a crisis.
The emerging proposal therefore does not simply say “use more AT1”. It redesigns AT1 so that it starts absorbing the consequences of stress earlier.
Academics Yvan Lengwiler and Corinne Zellweger-Gutknecht have proposed a staged structure under which deterioration below regulatory capital requirements would first trigger restrictions on coupons, dividends and management bonuses.
If the bank continued deteriorating, AT1 investors could then move towards conversion into equity alongside a rights issue.
The intention is to turn AT1 from something that detonates near the point of failure into capital that helps stabilise the bank before failure arrives.
That matters because parliament could then allow UBS to satisfy part of the additional requirement with strengthened AT1 rather than forcing the entire burden into expensive CET1.
UBS has been encouraging precisely this direction. It says it supports stronger AT1 instruments provided they conform with international standards, while continuing to reject the Federal Council’s broader capital proposals.
The parliamentary committee failed to reach agreement earlier this month and reconvenes on August 31. Everyone agrees UBS should hold more capital. The battle is now over what that capital should look like and how expensive it should be.
And that tells us where this is heading.
UBS will pay more, but probably not as much as the Government would like.
Switzerland is not going to abandon tougher regulation. Credit Suisse made that politically impossible and financially irresponsible. UBS is now so important to Switzerland that the government will insist upon considerably stronger protection around the Swiss parent.
UBS, however, is winning part of the argument because parliament is increasingly focused on how to deliver that protection without imposing the full economic cost originally envisaged by the Federal Council.
The compromise is therefore taking shape: stronger capital requirements remain, the principle of protecting foreign subsidiaries more comprehensively survives, but UBS receives greater flexibility to meet part of the requirement through redesigned AT1 instruments rather than pure CET1.
The irony is wonderful. After threatening, lobbying and warning that Switzerland could make its national champion globally uncompetitive, UBS may achieve its objective not by defeating the government’s reform but by redesigning the definition of the capital that satisfies it.
The August 31 committee meeting will be important, but it will not finish the argument. Parliamentary deliberations are expected to continue into 2027.
What it will tell us is which principle Switzerland values most: maximum protection against another Credit Suisse or retaining a globally competitive UBS headquartered in Zurich.
The answer will be both.
That is why the eventual deal will demand more protection than UBS wants, and cost considerably less than the Federal Council originally intended.
And perhaps that is the bigger lesson from this whole saga.
UBS did not merely become Switzerland’s biggest bank when it swallowed Credit Suisse. It became a bank whose scale gives it negotiating power against the state that regulates it. When a bank can credibly discuss moving countries because it dislikes its capital requirements, the question is no longer whether the bank is too big to fail. It is whether the bank has become too big for the country that created it.
The next key moment is the 31 August parliamentary committee meeting, where the role of redesigned AT1 capital should become clearer.
Watch that space and, for more information, checkout these links:
https://www.admin.ch/en/newnsb/_9e8qd5sXEzLww7dK3H_9
https://www.swissinfo.ch/eng/workplace/ubs-the-bank-that-outgrew-a-country/91429662
https://www.swissinfo.ch/eng/ubs-nudging-swiss-capital-debate-toward-a-cheaper-compromise/91963754
https://www.ubs.com/global/en/our-firm/bankingstability.html
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...