Swiss government proposals to tighten capital requirements for UBS could have a prolonged negative effect on the national economy, according to a report commissioned by the bank and prepared by BAK Economics. The consultancy's analysis examined scenarios in which regulatory changes lead to a contraction in credit and traced the consequences for the broader economy.
Under the government proposal, UBS would be required to fully back its foreign units with Common Equity Tier 1 (CET1) capital. BAK Economics estimates that this approach could trim Switzerland's annual gross domestic product by between 1.3% and 3.9% across a 10-year period. The study modeled how a regulatory-driven tightening in bank lending might propagate through economic activity and reduce output over time.
According to the report, UBS set the topic parameters for the analysis, while BAK Economics conducted the research independently and produced simulations based on credit contraction scenarios and their subsequent effects on the real economy. The study aims to quantify potential economic costs tied to the proposed capital framework.
The policy debate follows major reforms to Swiss banking oversight after Credit Suisse collapsed in 2023 and was acquired by UBS in a state-engineered rescue. Swiss authorities have moved to strengthen rules intended to bolster financial stability in response to that crisis.
The BAK Economics findings add to an earlier government-commissioned cost-benefit analysis of the proposed UBS regulations. That prior analysis concluded that higher capital requirements would make banks more resilient, reduce moral hazard and improve the ability to absorb losses during a crisis. The two pieces of research frame competing considerations in the regulatory discussion: increased stability on one hand, and potential medium-term economic costs on the other.
The UBS-commissioned study does not itself prescribe policy but quantifies one possible set of economic consequences if the government requires full CET1 backing of the bank's foreign units and if that requirement triggers a contraction in credit supply. The report's authors emphasize that their results derive from modeled scenarios rather than a single forecast of future outcomes.
As Swiss regulators weigh the trade-offs between reinforcing the banking sector's shock absorption capacity and limiting unintended damage to the real economy, the new BAK Economics study will likely be referenced in ongoing discussions about the shape and stringency of final rules.
- Context: The study was commissioned by UBS and independently executed by BAK Economics using regulatory-credit-contraction scenarios.
- Primary finding: Requiring UBS to fully fund foreign units with CET1 capital could reduce Switzerland's annual GDP by 1.3% to 3.9% over 10 years according to the report's simulations.
- Policy trade-off: A separate government analysis found higher capital rules would raise bank resilience, reduce moral hazard and improve loss absorption in crises.