This report does not constitute a rating action.
We see potential changes to the Swiss "too-big-to-fail" framework as broadly supportive of banks' creditworthiness. The proposal offers greater supervisory effectiveness and standards to ensure that systemic banks are more resilient from a liquidity perspective. Nevertheless, it creates a headache for UBS Group, which faces a potential steep rise in its capital requirements, and investors in Swiss additional Tier 1 (AT1) securities would have more clarity around when to expect coupon deferral and non-call decisions. Stronger capitalization is usually supportive of credit ratings, but only if banks can concurrently operate a sustainable business model.
UBS has plenty of time to see the final shape of the rules and to consider its next steps. After further public consultation, the proposal will likely work its way into law and regulations over the next 18 months, with most changes being phased in after that.
What's Happening
The Swiss Federal Council laid out its proposal for the revision of the country's "too-big-to-fail" (TBTF) framework, which is intended to strengthen the resilience of the banking system and the regulatory powers in a stress scenario. The objective is to improve the three pillars of the TBTF regime: to strengthen crisis prevention, expand the crisis toolkit, and bolster liquidity (for more details, see “Swiss Federal Council Plans To Strengthen The Country's Too-Big-To-Fail Banking Framework,” published May 29, 2024.)
The proposal, published on June 6, aligns with findings and suggestions arising from the parliamentary investigation that followed Credit Suisse's collapse in 2023 (see chart for key elements of the proposal and other enhancements underway).
Why It Matters
If they are adopted, changes that give FINMA, the Swiss banking and markets supervisor, stronger powers over banks' senior managers and the ability to intervene at an earlier stage would better align the Swiss regulatory framework with those seen in comparable major global jurisdictions. We see this as supportive of our current banking industry country risk assessment on Switzerland.
The legislative work, happening in parallel, to formally introduce a public liquidity backstop would allow the Swiss National Bank to deepen lending to a systemic bank in resolution. We view this as a highly supportive, credible underpinning of the TBTF framework that goes beyond what we observe in most of Europe. The intention to push all Swiss banks to be better prepared to access central bank liquidity is also supportive, and in line with initiatives we see elsewhere in Europe. Whether banks overcome the perceived stigma of using these facilities remains to be seen, though.
The Council's proposal seeks to strengthen the risk-bearing function of AT1 capital. If adopted, it would be harder for banks to call AT1 securities. It would also introduce a mandatory requirement to cancel coupons if a bank reports four consecutive quarters of net losses. By reducing issuer discretion, these could alter the risk profile for investors in these AT1 securities, not only for new securities, but also for those outstanding.
For most rated Swiss banks, the changes would have no material impact if adopted as proposed. However, for UBS Group, the revisions to capital requirements would be meaningful--notably that they should fully deduct the carrying value of foreign subsidiaries from UBS AG's common equity Tier 1 (CET1) capital. On a pro forma basis, absent mitigation, this could lead the group to pile up additional CET1 capital of up to Swiss Franc (CHF) 24 billion (according to the bank's estimate), albeit partially offset by a significant reduction in AT1 needs. This might increase UBS's cost of capital and potentially place it at a significant competitive disadvantage both globally and domestically, absent a change in its strategy or other mitigation.
What Comes Next
Most changes will be adopted via the legislative route--an update to the Swiss banking law--thus subject to approval by parliament. This could happen within 18 months, followed by a multiyear phase-in period for full legal adoption. Other changes could take effect sooner, through amended banking ordinances--rules set out by FINMA.
Related Research
- Credit FAQ: Making Capital Stretch Further--What Double Leverage Means For Financial Institution Ratings, April 8, 2025
- Banking Industry Country Risk Assessment: Switzerland, March 31, 2025
- UBS Group AG, March 14, 2025
- The Role Of Bank AT1 Hybrid Capital One Year On From The 2023 Banking Turmoil, June 26, 2024
- 2023 Banking Turmoil: Global Regulators Reflect And React, June 6, 2024
- Swiss Federal Council Plans To Strengthen The Country's Too-Big-To-Fail Banking Framework, May 29, 2024
- Swiss Public Liquidity Backstop Has Limited Implications For Hybrid Ratings, Sept. 18, 2023
- Crisis Management Observations From Recent European And U.S. Banking Sector Volatility, April 19, 2023
- European Bank AT1 Hybrids In A Post-Credit Suisse World, March 21, 2023
| Primary Credit Analysts: | Anna Lozmann, Frankfurt +49 69 33999 166; anna.lozmann@spglobal.com |
| Giles Edwards, London + 44 20 7176 7014; giles.edwards@spglobal.com | |
| Secondary Contacts: | Lukas Freund, Frankfurt +49 69 33999 139; lukas.freund@spglobal.com |
| Markus W Schmaus, Frankfurt +49 69 33999 155; markus.schmaus@spglobal.com | |
| Michelle M Brennan, London + 44 20 7176 7205; michelle.brennan@spglobal.com |
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