Switzerland’s recent implementation of stringent banking regulations has been deemed a “lose-lose situation” for UBS, as stated by Beat Wittmann, a partner at Porta Advisors in Zurich. The Swiss government’s plan, consisting of 22 measures to regulate banks considered “too big to fail,” comes in the wake of the dramatic rescue of Credit Suisse by UBS. With UBS’s balance sheet now double the country’s annual GDP at $1.7 trillion, there is heightened scrutiny on the banking sector and the wider economy to prevent another collapse similar to that of Credit Suisse.
Wittmann criticized the failings of government policy, central banks, regulators, and finance ministers that led to the downfall of Credit Suisse. He highlighted the unsustainable business model, incompetent leadership, and neglect of market indicators that foreshadowed the bank’s demise. Wittmann emphasized the lack of institutionalized expertise at policymaker levels in overseeing capital markets, a critical component in regulating the banking sector effectively.
The government’s proposed measures, which include empowering the Swiss Financial Market Supervisory Authority, imposing capital surcharges, and strengthening subsidiaries’ financial positions, fall short of providing a comprehensive solution. Wittmann expressed skepticism about the ability of politicians and regulators to maintain oversight of banks while preserving their global competitiveness. He argued that the regulations would hinder UBS from maximizing its potential and competing with Wall Street giants like Goldman Sachs and JPMorgan.
Wittmann emphasized the importance of regulatory reform over imposing stricter requirements on major Swiss banks such as UBS. To enable UBS to leverage its increased scale and challenge its international counterparts, regulatory frameworks must be harmonized globally. Wittmann highlighted the disparity in valuations between UBS and its rivals like Goldman Sachs and JPMorgan, attributing it to differences in regulatory environments and incentives.
Reflecting on Switzerland’s history of struggling with systemically important banks, Wittmann underscored the repercussions of inadequate regulation and enforcement. With only one global systemically relevant bank remaining in Switzerland after the failures of others, he called for a more proactive approach to regulatory oversight to prevent future crises. Wittmann emphasized the crucial role of policymakers in creating a robust regulatory framework that safeguards the stability of the banking sector.
Switzerland’s new banking regulations present significant challenges for UBS and the Swiss financial sector as a whole. While the intention behind the reforms is to bolster financial stability and prevent another Credit Suisse-like collapse, there are concerns about the potential limitations they may impose on UBS’s competitiveness. Achieving a balance between regulatory oversight and promoting growth and innovation in the banking sector remains a pressing challenge for Swiss policymakers and financial institutions.
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