New Swiss bank laws could derail UBS’ challenge to Wall Street giants

Sergio Ermotti, CEO of Swiss banking giant UBS, spoke at the group’s annual shareholders meeting in Zurich on May 2, 2013. Switzerland’s new banking regulations pose challenges for UBS and may hinder its ability to compete with Wall Street giants, according to Beat Wittmann, a partner at Zurich-based Porta Advisors.

The Swiss government recently proposed 22 measures to tighten oversight of banks considered “too big to fail” following the rescue of Credit Suisse by UBS. This government-backed merger marked the largest consolidation of systemically important banks since the Global Financial Crisis.

With UBS’s balance sheet now at $1.7 trillion, double the country’s GDP, there is increased scrutiny on the Swiss banking sector’s stability. Wittmann criticized the government’s response to Credit Suisse’s downfall as a failure of policymaking and regulation.

The proposed measures include empowering the Swiss Financial Market Supervisory Authority and enforcing capital surcharges, but they do not recommend a blanket increase in capital requirements. Wittmann believes that these regulations create a lose-lose situation for Switzerland as a financial hub and hinder UBS’s potential growth.

He argues that regulatory reforms should take precedence over tightening restrictions on major banks like UBS to allow them to compete on a global scale. Aligning Swiss regulations with those in Frankfurt, London, and New York would enable UBS to catch up to its international competitors and achieve higher valuations.

Wittmann emphasized the importance of a level playing field in regulatory frameworks to ensure fair competition. He criticized the lack of will in the government’s current reform efforts, citing past failures in regulation that led to the consolidation of Swiss banks and the necessity for more effective enforcement in the future.

Switzerland’s tough new banking regulations are creating a “lose-lose situation” for UBS, according to Beat Wittmann, partner at Zurich-based Porta Advisors. The Swiss government has proposed 22 measures to tighten oversight of banks deemed “too big to fail” after brokering the emergency rescue of Credit Suisse by UBS. Wittmann believes the fall of Credit Suisse was due to self-inflicted failure of government policy and an unsustainable business model. The report suggests giving more power to the Swiss Financial Market Supervisory Authority, applying capital surcharges and strengthening financial positions of subsidiaries, but does not recommend a blanket increase in capital requirements. Wittmann argues that regulatory reform should be prioritized over tightening regulations on large banks like UBS in order to compete globally. He believes the Swiss regulatory regime should align with those in Frankfurt, London, and New York to enable UBS to challenge major Wall Street banks. Wittmann criticizes the lack of will for relevant reforms in the report, citing the failure of policymakers in addressing past banking crises.

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