Executive Summary

The Economic Commission of the Council of States has postponed deliberation on UBS's equity capital allocation and wants to examine "variants and alternatives" to the Federal Council's proposal. The commission will not meet again on this topic until mid-August, meaning it could reach the smaller chamber at the earliest in the autumn session. In parallel, UBS plans to offer private and savings accounts as well as lending services in the USA starting in late 2027. An empirical study by Basel economics professor Peter Kugler shows that larger balance sheets at Swiss major banks are statistically significantly associated with lower profits.

People

Topics

  • Equity capital regulation for major banks
  • UBS expansion USA
  • Financial stability and taxpayers
  • Lobbying influence parliament

Clarus Lead

The delay is strategic: by postponing the equity capital tightening to autumn, the Council of States gives the banking lobby an entire summer to influence parliamentarians. Meanwhile, UBS is planning concrete international expansion in the USA – with lending business that inflates the balance sheet. New research data, however, shows that this growth model strains profitability and makes stricter equity capital rules mandatory, not optional. The paradox: while the Council of States weakens equity capital requirements, it simultaneously wants to enshrine the Public Liquidity Backstop (state emergency aid) in law – effectively a hidden subsidy paid by taxpayers.

Detailed Summary

Peter Kugler's empirical analysis of bank data from 1987 to 2024 establishes a solid factual foundation: at Swiss major banks, there is a statistically significant negative correlation between balance sheet size and profitability. Kugler's conclusion is unambiguous: "Their profits fluctuate widely, but in the long term follow no growth path." The aggressive growth policy has "massively reduced" profitability in the past – a finding that fundamentally questions the classic expansion-at-any-cost model.

The UBS USA expansion illustrates this risk mechanism concretely. By offering deposit business and lending to wealthy Americans, the US subsidiary expands its balance sheet and increases risk. As long as this expansion is not backed by 100% CET1 equity capital (hardened core capital), Swiss taxpayers are effectively bearing the default risks from foreign loans. The Federal Council had already presented a "moderate compromise proposal" – 100% CET1 backing for foreign subsidiaries. But the commission is now opening the door to AT1 bonds, a controversial instrument with low risk weighting.

The parallel announcement to resume the Public Liquidity Backstop reinforces the perversity: while parliament demands no additional risk from UBS, taxpayers should permanently be liable via a legally enshrined safety net – a classic "private profits, socialized losses" pattern. UBS is supposed to compensate for the PLB, but structural dependency remains. The summer months will be decisive: the banking lobby now has time to make "alternatives" palatable that, in reality, shift risks onto the general public.

Key Statements

  • Council of States postpones equity capital decision until autumn, creating space for lobbying over the summer
  • UBS plans lending business in USA starting 2027, expanding balance sheet risk without increased equity capital requirements
  • Empirical study: larger balance sheets correlate with lower profits at Swiss major banks – strong equity capital is necessary, not optional
  • Taxpayers would effectively be securing international expansion, while the Council of States simultaneously enshrines state emergency aid (PLB) in law

Critical Questions

  1. Evidence/Data Quality: Kugler's study covers 1987–2024 – does this timeframe encompass structural changes in banking regulation (Basel I–III) that could weaken its relevance for current regulatory frameworks?

  2. Data Quality: Are the observed correlations (larger balance sheets = lower profits) causal or merely correlative? Could market volatility or interest rates rather than balance sheet size determine profitability risk?

  3. Conflicts of Interest: What financial or lobbying support has UBS provided to the Economic Commission or individual Council members?

  4. CET1 Rules Implementation: How would 100% CET1 backing for the US subsidiary concretely change UBS's competitive position in the US market – and what evasive movements are to be expected?

  5. Alternative: AT1 Bonds: What is the empirical default rate of AT1 instruments during banking crises? Are they truly "controversial" or scientifically accepted?

  6. Growth–Risk Causality: Kugler shows correlation, not that foreign expansion necessarily leads to profitability loss – could a well-managed US business be profitable?

  7. PLB Implementation Risk: How would legal PLB enshrinement strengthen moral hazard – i.e., does it encourage UBS to take greater risks because rescue is guaranteed?

  8. Summer Postponement: Are there evidence-based reasons for postponing until mid-August, or is it purely strategic to enable lobbying?

Source Directory

Primary Source: Equity Capital Debate – Council of States Gives UBS an Entire Summer to Weaken Regulations – Finance and Economics, Valentin Ade, 05.05.2026

Verification Status: ✓ 05.05.2026

This text was created with the support of an AI model. Editorial responsibility: clarus.news | Fact-check: 05.05.2026