The head of the Basel Committee on Banking Supervision, Neil Esho, defended Switzerland’s current bank capital rules, countering claims by UBS that tougher regulations could disadvantage its banks compared to rivals in other countries. Swiss proposals to increase capital requirements for banks, following the collapse of Credit Suisse in 2023, could require UBS to raise an additional $40 billion in capital. UBS has expressed concerns that the proposed changes would hurt the bank, with Chairman Colm Kelleher warning that additional regulations could harm not only UBS but also the broader Swiss financial sector and economy.
Esho addressed these concerns, arguing that focusing only on headline capital requirements was misleading. He pointed out that Swiss regulations allow more flexibility in the types of financial instruments that count as capital, which could mitigate the potential impact on Swiss banks. For example, Swiss rules allow capital held in subsidiaries to count toward a parent bank’s requirement, even if this could lead to double-counting, which Basel guidelines caution against. Esho stressed that higher capital numbers do not necessarily equate to greater resilience if the quality of capital is not considered.
In his remarks, Esho rejected the argument that Swiss banks were being unfairly penalized. He also highlighted that the quality of capital should be prioritized over the quantity, a stance he had expressed earlier. As the Swiss government prepares to propose new capital regulations in June, this debate is expected to intensify. Esho acknowledged that he was not in a position to advise governments on their regulatory decisions but emphasized the importance of global consistency in capital requirements.
The Basel Committee’s revised standards after the 2007-2009 financial crisis aim to ensure sufficient capital across banking groups, but Esho noted that these rules do not guarantee capital availability at the level of individual legal entities. The Basel framework aims to address systemic risks by ensuring that banks are adequately capitalized at the consolidated group level, which is crucial for major financial centers like Switzerland. UBS, as a major global player, faces specific challenges given its size and the importance of its U.S. subsidiary. Esho indicated that the Swiss government’s proposals for UBS to hold more capital in Switzerland align with the need to address such risks.
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