A Swiss parliamentary committee has proposed a compromise that would give banking giant UBS greater flexibility in meeting new capital reserve requirements set by the government. The recommendation, made Monday by the Economic Affairs and Taxation Committee of the upper house, suggests that UBS could fulfill half of the new regulatory capital targets using additional Tier 1 (AT1) convertible bonds, rather than relying solely on traditional equity capital.

The proposed changes come in response to the government’s efforts to bolster the resilience of Switzerland’s banking sector following the collapse of Credit Suisse in 2023. With UBS having absorbed its former rival, authorities have sought to ensure the bank holds sufficient capital reserves to fully cover its foreign subsidiaries in the event of financial shocks. The government’s initial plan would require UBS to allocate roughly $20 billion in additional reserves.

UBS had previously cautioned that overly stringent rules could undermine its competitiveness relative to international peers. Monday’s committee recommendation appears to accommodate those concerns by allowing a portion of the capital requirements to be met with AT1 bonds, provided these securities are restructured appropriately. Committee president Erich Ettlin emphasized that the proposal aims to balance stronger protections for taxpayers with a regulatory framework that does not overly burden the broader economy. He described the recommendation as a compromise, rather than a concession to UBS.

The proposal must still go through the full upper house of parliament and then be reviewed by the lower house before it can be enacted. Industry analysts from Jefferies noted that, if adopted, the move would grant UBS more leeway in meeting the government’s capital demands related to its foreign operations. They observed that the recommendation considerably reduces the potential negative capital scenarios that UBS might face under the current requirements.

The debate over Switzerland’s banking regulations continues as lawmakers seek to strengthen financial stability while maintaining a competitive environment for the country’s largest financial institutions.