Switzerland’s former finance minister says UBS poses too much risk due to its massive size and influence within the country’s economy.
In the wake of UBS’s acquisition of Credit Suisse, concerns have been raised about the size and influence of UBS within the Swiss economy.
Former Swiss Finance Minister Ueli Maurer expressed these concerns in an interview with the Tages-Anzeiger on Saturday, emphasizing the need for measures to mitigate the risks associated with the enlarged bank.
UBS’s Size: A Cause for Concern
Maurer stated, “If you look at the numbers alone and compare UBS with the Swiss economy, it is too big.”
With a balance sheet totaling approximately $1.7 trillion, UBS’s assets are now double the annual output of the Swiss economy.
This staggering size gives UBS a significant presence in the financial landscape, but it also raises alarms about systemic risk.
Experts warn that if UBS were to fail, there are no remaining local competitors capable of absorbing such a massive institution.
The potential cost of nationalizing UBS could also severely strain public finances.
The Role of Shareholders in Risk Management
According to Maurer, the responsibility for reducing risk primarily falls on UBS’s shareholders, particularly in their selection of board members.
He stated, “They must take responsibility, not the taxpayers in the end.”
This statement underscores the importance of accountability within the bank’s governance structure.
Maurer, who left office shortly before Credit Suisse’s collapse in March 2023, also noted the need for legislative measures to address these concerns.
This comes in light of a recent parliamentary report that questioned his actions during the Credit Suisse crisis at the end of 2022.
Swiss Government’s Response: Tougher Capital Requirements
In response to the challenges posed by Credit Suisse’s downfall, the Swiss government has proposed stricter capital requirements for UBS and the country’s other major banks.
These measures aim to bolster the resilience of the financial sector.
While the specific capital requirements have yet to be finalized, estimates suggest that UBS may be required to hold an additional $15 billion to $25 billion in capital.
However, this has met with resistance from the bank, which argues that excessively high requirements could hinder its competitiveness.
Maurer cautioned that if capital requirements become burdensome, Swiss banks may consider relocating their operations to more favorable environments.
He remarked, “For the Swiss economy with its many international multi-nationals, a large bank is a locational advantage.
But risks must be minimized.”
UBS’s Position and Future Outlook
UBS has refrained from commenting on Maurer’s interview, but CEO Sergio Ermotti previously assured that the bank possesses sufficient capital to manage potential challenges.
In an interview with Migros Magazine, Ermotti emphasized that while UBS supports many of the Swiss government’s proposals for enhancing banking regulation, such regulations must be targeted and proportionate to avoid compromising the bank’s competitive edge.
As UBS navigates its expanded role in the Swiss economy, the discussions initiated by former Finance Minister Ueli Maurer highlight the delicate balance between maintaining a robust banking sector and managing the inherent risks associated with a dominant financial institution.
The Swiss government’s forthcoming decisions on capital requirements will be crucial in shaping the future landscape of banking in Switzerland, ensuring that UBS can operate effectively while safeguarding the interests of the economy and taxpayers alike.
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