Switzerland’s Social Democratic Party has proposed limiting the size of UBS’s assets following its acquisition of Credit Suisse, according to the Aargauer Zeitung newspaper. The party, the second largest in the Swiss parliament, argues that the combined bank’s balance sheet, estimated to be around 1.5 trillion Swiss francs, poses significant risks to the country, especially considering the implicit state guarantee it enjoys.
Party member and lawmaker Samira Marti told the newspaper that an upper limit should be imposed on the bank’s assets, suggesting they should not exceed half of Switzerland’s GDP, which stood at 771 billion Swiss francs last year. This would require UBS to reduce its assets to a quarter of its current level. Marti emphasized the necessity of such a reduction from the taxpayer’s perspective.
According to Chairman Colm Kelleher, the lender is expected to finalize the takeover of Credit Suisse soon.
An alternative approach outlined by Marti’s party would involve imposing higher capital requirements if UBS’s assets surpass 50% of the Swiss GDP. Any portion of the bank’s balance sheet above this threshold would be subject to an equity ratio of 30% or more. Currently, the Swiss parliament is discussing an equity requirement of 15%.
The rescue of Credit Suisse, orchestrated by the government, has already involved the deployment of 209 billion Swiss francs in state and central bank support. This has raised concerns in parliament, which symbolically rejected the package.
Marti emphasized the goal of reducing the size of UBS, stating, “We need to implement changes to make banks less vulnerable in times of crisis.”
Challenges of UBS’s enlarged balance sheet
The proposal by the Social Democratic Party highlights the concerns surrounding UBS’s expanded balance sheet resulting from its takeover of Credit Suisse. With the combined bank’s assets projected to be double the size of Switzerland’s GDP, experts warn of the substantial risks involved. Also, the implicit state guarantee enjoyed by UBS further amplifies the need for careful management and regulation to protect the Swiss economy.
The proposition to limit UBS’s assets reflects the ongoing debate on finding the right balance between growth and stability in the banking sector. While expansion can bring economic advantages, it also increases the potential risks and vulnerabilities that could have far-reaching consequences. The proposal offers an opportunity for policymakers to reassess the regulatory framework and ensure that banks operate within manageable limits, safeguarding the financial system and taxpayers in times of crisis.
