Switzerland recently introduced stringent banking regulations that have been deemed a “lose-lose situation” for UBS by Beat Wittmann, a partner at Porta Advisors. The Swiss government’s 209-page plan includes 22 measures aimed at tightening the oversight of banks considered “too big to fail.” This move comes in the aftermath of the emergency rescue of Credit Suisse by UBS, marking one of the largest mergers between two systemically important banks since the Global Financial Crisis. With a balance sheet now double the country’s annual GDP at $1.7 trillion, UBS faces heightened scrutiny regarding the protections surrounding the Swiss banking sector and the broader economy.
Wittmann criticized the Swiss government for failing to address the systemic issues that led to the downfall of Credit Suisse. He highlighted the importance of competent leadership, sustainable business models, and effective oversight by policymakers, regulators, and central banks. The proposed measures focus on giving more power to the Swiss Financial Market Supervisory Authority, implementing capital surcharges, and strengthening the financial positions of bank subsidiaries. However, they fall short of recommending a blanket increase in capital requirements, raising concerns about the effectiveness of the reforms.
According to Wittmann, the new regulations create a lose-lose situation for both Switzerland as a financial center and UBS. The restrictions imposed on UBS could limit its ability to compete with Wall Street giants like Goldman Sachs, JPMorgan, Citigroup, and Morgan Stanley. Despite having a balance sheet comparable in size to these competitors, UBS trades at a much lower valuation, indicating a lack of global competitiveness. Wittmann emphasized the need for regulatory reform to enable UBS to leverage its scale and challenge the dominance of established Wall Street players.
Wittmann argued that Switzerland should prioritize regulatory reform over increasing capital requirements for its largest banks. He pointed out the importance of establishing a level playing field at the regulatory level to ensure competitiveness and market efficiency. The failures of past Swiss banks can be attributed to inadequate regulation and enforcement, underscoring the need for a comprehensive approach to regulatory oversight. By enhancing regulatory frameworks and incentivizing compliance, Switzerland can empower UBS to realize its full potential and strengthen its position in the global banking landscape.