The new banking regulations in Switzerland have created a “lose-lose situation” for UBS, according to Beat Wittmann of Porta Advisors. These regulations, proposed by the Swiss government, aim to tighten the policing of banks deemed “too big to fail” following the emergency rescue of Credit Suisse by UBS. This government-backed takeover was a significant event in the banking sector, highlighting the vulnerabilities of systemically important banks. With UBS’s balance sheet now double the country’s annual GDP, there is increased scrutiny on the protections surrounding the Swiss banking sector and the broader economy.
Wittmann criticized the fall of Credit Suisse as “an entirely self-inflicted and predictable failure of government policy, central bank, regulator, and above all finance minister.” He pointed out that Credit Suisse had a failed business model, incompetent leadership, and warning signs such as falling share prices and credit spreads that were ignored. This failure, in his view, highlights a lack of institutionalized know-how at the policymaker levels to effectively oversee the banking sector.
The Wednesday report suggested giving additional powers to the Swiss Financial Market Supervisory Authority, applying capital surcharges, and strengthening the financial position of subsidiaries. However, it did not recommend a blanket increase in capital requirements. Wittmann believes that these measures do not address the fundamental issue of regulatory reform in the banking sector. He argued that prioritizing regulatory reform over stricter capital requirements is essential for UBS to compete globally and challenge Wall Street giants like Goldman Sachs, JPMorgan, Citigroup, and Morgan Stanley.
The Need for a Global Regulatory Framework
Wittmann emphasized the importance of a global regulatory framework that ensures a level playing field for banks like UBS. He highlighted the track record of policymakers in Switzerland, pointing out that the country has gone from three global systemically relevant banks to just one. These cases, according to Wittmann, are a direct result of insufficient regulation and enforcement of existing regulations. He stressed the need for competent oversight and a regulatory framework that incentivizes responsible banking practices.
The new banking regulations in Switzerland pose a significant challenge for UBS and the country’s financial center. The focus on tightening oversight and implementing capital surcharges may limit UBS’s ability to compete globally and challenge Wall Street giants. To address these challenges, regulatory reform must be prioritized, and a global regulatory framework that ensures a level playing field for all banks is essential. Only by addressing these fundamental issues can UBS realize its full potential and navigate the complexities of the global banking sector effectively.
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