Switzerland is considering credible emergency planning to potentially remove the state guarantee for a bank such as UBS in the event of a bankruptcy. The report presented this week includes stricter equity capital requirements, stronger liquidity requirements, expanded powers for the supervisory authority, and enhanced personal responsibility for bank executives. These proposed measures aim to prevent taxpayers from bearing the burden of a failing bank.
However, even seemingly minor changes, such as increasing the equity capital requirement from 5% to 7% for UBS, could have significant financial implications. The effectiveness of these measures in removing the state guarantee remains uncertain. A report by American professor Daniel Tarullo suggests that global authorities may be hesitant to resolve systemically important banks in times of crisis, due to the risk of triggering a larger financial meltdown.
The feasibility of credible emergency planning is the key consideration for Switzerland when dealing with UBS. The report emphasizes the importance of revising and specifying resolution planning for large banks. While some recommendations in the report are seen as positive steps, the success of removing the state guarantee will depend on the credibility of these plans.
Some experts suggest that increasing capital requirements for UBS may be necessary to protect taxpayers if a viable resolution plan cannot be established. However, tightening regulations through other means, such as removing capital relief for foreign subsidiaries of UBS or increasing requirements through stress tests, may also be considered.
The debate over capital requirements and potential relocation of UBS headquarters underscores the complexities of financial regulations and their implications for the Swiss financial market. Ultimately, the decision on how to address
