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UBS Group AG executives have proposed introducing a permanent cap on the size of its investment bank as a way to address concerns from the Swiss government over potential financial risks. The move is designed to reduce the likelihood that future losses, such as the Archegos Capital debacle that contributed to Credit Suisse's collapse, could jeopardize the entire bank.
Key Points:
Investment Bank Size Limit: UBS is seeking to make its self-imposed limit on the investment bank, which currently stands at 25% of its balance sheet, a permanent fixture in Swiss law. This would help ease concerns that the investment bank could pose systemic risks to the economy.
Capital Requirements: UBS is currently negotiating with the Swiss government, which is urging the bank to increase its capital levels by up to $25 billion to ensure financial stability. UBS argues that the government's capital demand is excessive, especially considering the bank’s role in rescuing Credit Suisse two years ago.
Relocation Consideration: If the Swiss government insists on the capital increases, UBS is reportedly considering relocating its headquarters outside of Switzerland. UBS believes the proposed capital requirements are unfair, especially given that the bank was bailed out by the government following the 2008 financial crisis.
Capital Ratio Concerns: UBS's internal estimates suggest that the proposed capital demand would raise its key capital ratio to about 20% from the current 14%, a change UBS sees as an overreaction.
In response to these developments, UBS has stated that it supports the government’s general efforts to strengthen financial stability but views the disproportionate capital demand as costly for the bank and Swiss businesses. The bank also emphasized that such measures could harm Switzerland’s standing as a globally competitive financial center.
This proposal by UBS marks a pivotal moment in the ongoing negotiations between the bank and the Swiss government, as both sides work to balance financial stability with economic competitiveness.
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