The Swiss upper house has voted for new capital rules that would require UBS to back its foreign units with 90 per cent Common Equity Tier 1 (CET1) capital.

Passing 29 to 16, the vote comes as a blow to the major Swiss lender, which has repeatedly argued that additional capital requirements would damage its competitiveness and be felt at the customer level.

The initial proposal by the Swiss parliament, put forward to prevent a repeat of the 2023 collapse of Credit Suisse, would have forced UBS to back foreign units with 100 per cent CET1 capital. UBS had said this would force it to hold up to $24 billion in additional capital.

“UBS does not deny that it has the necessary funds for this capital build-up,” said the Swiss finance minister Karin Keller-Sutter, in a parliamentary speech reported by the news and information company SWI swissinfo.

Keller-Sutter added that the capital could either be used “to strengthen the Swiss parent bank, as the Federal Council wants. Or in favour of shareholders in the form of dividend payouts and buybacks of shares”.

Parliamentarians chose a slightly softer 90 per cent requirement, which was still more stringent than a watered-down proposal by an upper house committee formally announced at the start of September. This would have allowed UBS to back foreign units with 50 per cent CET1 capital and 50 per cent Additional Tier 1 (AT1) capital.

AT1 capital is a cheaper form of debt that includes hybrid debt instruments, and would have reduced UBS’s additional capital costs to $13 billion, compared with the roughly $18 billion it will have to hold under the 90 per cent requirement.

This had been criticised by the Swiss finance minister Karin Keller-Sutter, who argued that “lobbying in parliament” was pushing the softer proposal and that if passed it could make UBS’s operations more uncertain.

On 21 September, UBS’s chief executive Sergio Ermotti rallied against the proposals, arguing that the Swiss parliament was trying to “eliminate all risks” and that this would impact UBS’s competitiveness. The impacts would be felt by UBS shareholders, customers, and employees alike, he added.

The bill will now move to Swiss National Council, its lower house, with a final vote on the capital rules expected some time from the end of this year to the quarter of 2027.

---