Swiss Upper House Backs 90% CET1 Coverage for UBS Foreign Units

Key Facts

Switzerland's Council of States on September 23, 2026 backed rules requiring UBS to cover investments in its foreign units with 90% Common Equity Tier 1, or CET1, capital. The chamber supported that option by 29 votes to 16 over a less stringent alternative. It also narrowly rejected the government's proposal to set coverage at 100% CET1. The vote is the first decision by either parliamentary chamber on a central part of reforms following Credit Suisse's 2023 collapse. It does not enact the rules because the bill now moves to the National Council, Switzerland's lower house.

The outcome differed substantially from the compromise recommended by the Council of States' Economic Affairs and Taxation Committee. The committee majority proposed covering 50% of foreign investments with CET1 while allowing AT1 instruments for up to another 50%. That compares with the current framework of 45% CET1 and 17% AT1, according to material published on parliament's website. The chamber ultimately chose 90%, a level much closer to the government's 100% plan than the committee's 50/50 formula. The result therefore tightens the existing treatment while giving UBS only limited relief from the government proposal.

UBS said the 90% option would reduce its additional capital bill by about $4 billion compared with the government's 100% plan. Even so, the bank estimates that the full regulatory overhaul would require roughly $18 billion of additional CET1 under the 90% decision. Those figures are UBS estimates rather than a final cost established by the regulator or parliament. The burden could change with the bank's size, subsidiary structure, valuation of foreign investments and management decisions before implementation. The 10-percentage-point gap therefore provides measurable relief without removing the requirement that UBS opposes.

The government has published different estimates because it measures the effect using its own regulatory methodology and assumptions. It estimated that 100% coverage would strengthen CET1 at the parent bank by about $20 billion based on the status quo. Had the rules applied on January 1, 2026, the government said the actual shortfall would have been about $9 billion because some capital was already available. It also projected that the group's CET1 ratio could reach 15.5% after all measures, an increase of 1.1 percentage points from the fourth quarter of 2025. The methodological differences mean the UBS and government figures describe specified scenarios rather than one settled bill.

The rule concerns how the Swiss parent backs the carrying value of investments in foreign subsidiaries, not the amount of cash reserves held by UBS. The government says full CET1 coverage would prevent valuation losses on those investments from weakening the parent bank's capital ratios to the same extent. Stronger backing would let the parent dispose of a foreign unit during a crisis-recovery phase without the same capital effect, according to the government. The concern gained urgency after Credit Suisse's 2023 collapse, when state intervention accompanied the UBS takeover to avert a financial crisis. The government therefore argues that greater coverage shifts more loss risk to shareholders and reduces the chance that taxpayers bear the cost of another crisis.

UBS says 90% coverage is not a genuine compromise and would damage its competitiveness against global banks operating under different regimes. The bank preferred the 50/50 formula because it would permit AT1 instruments alongside higher-quality CET1 capital. The government says 100% CET1 coverage offers clearer protection for the parent bank and taxpayers. The upper-house vote retained most of the protection sought by the government while giving UBS some relief from 100%. For shareholders, higher CET1 requirements can reduce capital available for distributions and buybacks even as they lower extreme-loss risk.

UBS shares closed at $49.19 on September 22, 2026, before the vote, according to EL7's internal market data. The stock traded between $49.05 and $50.33 during that session. That range provides a pre-decision reference but does not measure the market's full response on September 23. Any later move therefore cannot be attributed to the vote alone without a comparable post-decision price period. Sustainable repricing will depend more heavily on the rules' final cost, the transition period and their effect on returns and distributions.

The bill moves to the National Council after the Council of States decision, so the 90% ratio is not yet an effective rule. Published reporting indicates that a final decision could come at the end of 2026 at the earliest, with the process more likely to extend into 2027. The National Council could endorse 90%, move toward 100% or revisit the 50/50 structure. Any differences between the chambers would require further reconciliation before the legislation is completed. The government proposed a 7-year transition if deliberations are not delayed, but the final timetable will depend on the text enacted by parliament.

For investors, the first test is whether 90% survives in the National Council rather than remaining a one-chamber result. The relative case for the stock improves if the ratio stays below 100% and the implementation period is long enough to allow internal capital generation. A return to 100% could move the cost toward higher estimates and increase potential pressure on returns and distributions. Conversely, a return to the 50/50 formula would reduce CET1 use but reopen the dispute over AT1's capacity to absorb losses in a crisis. UBS guidance on retained earnings, distributions and buybacks will be more useful than a single capital figure when assessing the final impact.