Markus Ronner: «Size Alone Does Not Constitute a Risk»

Markus Ronner: «Size Alone Does Not Constitute a Risk»

The tone of the debate on the level of regulatory capital for systemically important banks is intensifying. What are the arguments UBS uses to resist the requirement of holding even more capital in the future? finews.asia spoke with the man who arguably knows the bank and its risks better than anyone. 

The positions are clear. Following the (forced) merger of Credit Suisse (CS) with UBS in March 2023, the Swiss Federal Council, the Financial Market Supervisory Authority (Finma), and the Swiss National Bank unanimously demand stricter capital requirements for systemically important banks in general and UBS in particular. More capital is intended to reduce the risk of Switzerland having to rescue a major bank again. On the opposing side are the Swiss Bankers Association, the business umbrella organization Economiesuisse, and, of course, UBS itself.

They argue that requiring banks to hold even more capital would harm both the economy and the financial sector.
This year, parliament will make key decisions on adapting the too-big-to-fail (TBTF) regulatory framework, established after the 2008 financial crisis, as well as future capital requirements. Ahead of this, the debate has become even more heated. finews.asia wanted to know how UBS, which is most affected by future regulations, perceives the issue—beyond buzzwords and soundbites—and spoke with Markus Ronner, who has been Group Chief Compliance and Governance Officer at UBS since 2018.

Ronner arguably knows the bank and the diverse risks associated with its operations better than anyone. He has been with UBS for over 40 years. In 2001, he became Head of Group Internal Audit, moved to Asset Management as COO in 2007, and held leadership roles in Wealth Management from 2009. From 2011 to 2013, he led the group-wide program implementing TBTF regulations at the bank. From 2012 to 2018, Ronner was Head of Group Regulatory and Governance.

Mr. Ronner, let’s clarify the numbers. How much capital does UBS currently hold, and what is the regulatory minimum requirement?

UBS currently holds around $74 billion in Common Equity Tier 1 (CET1) capital. This corresponds to a capital ratio of 14,3 percent, well above the regulatory minimum of 10,6 percent. Due to the CS takeover, these minimum requirements will increase under existing TBTF rules, with additional size surcharges pushing the requirement to approximately 12 percent. Additionally, UBS must meet the Tier-1 capital requirements of about 16 percent.

How would this look in a crisis?

Under the TBTF framework, systemically important banks must also hold nearly $100 billion in debt that can be converted into equity in an extreme crisis. This means that UBS, with approximately $88 billion in equity, holds over $185 billion in loss-absorbing capital. To put this into perspective, this: would be enough to cover the total losses UBS suffered during the 2008 financial crisis—four times over.

«With today’s loss-absorbing capital, we could cover the losses UBS incurred during the 2008 financial crisis four times over.»

The tightened capital adequacy ordinance came into effect earlier this year. What were the consequences for UBS?

Switzerland implemented the so-called Basel III rules earlier and more comprehensively than the EU, the UK, and the US, as of January 1, 2025. Essentially, this means that Swiss banks must calculate risks—particularly operational risks—more conservatively and therefore hold more capital. According to our estimates, we have to hold approximately 10 percent more capital (nearly $5 billion) for the same risks compared to competitors in the EU, UK, and US. As a result, we already face a competitive disadvantage due to the Basel III implementation.
The Federal Council announced in April 2024 that it intends to tighten capital requirements for the last remaining Swiss major bank, and the Parliamentary Investigation Commission (PUK) report on CS has reinforced its stance.

What conclusions do you draw from the PUK report regarding the capital discussion?

The PUK report confirms that CS collapsed primarily due to mismanagement. The report also highlights capital issues at the parent company, which were largely due to regulatory concessions. UBS had neither a regulatory filter nor needed a ten-year transition period to meet increased capital requirements for subsidiaries—it met the new conditions from day one. CS’s capital problem did not stem from the requirements themselves but from inadequate implementation. Under the existing regulations, CS would have had enough capital to absorb its massive losses.

«UBS had neither a regulatory filter nor required a ten-year transition period for increased capital requirements for subsidiaries.»

And looking ahead?

The Federal Council’s April 2024 report outlined various measures to improve the resilience of systemically important banks. It emphasized that these measures should be proportionate, effective, and internationally coordinated. UBS has always stated that it fundamentally agrees with these measures, provided they adhere to the principles defined by the Federal Council. However, extreme scenarios for new capital requirements should have no place, as they would further weaken the competitiveness of the affected banks and impose costs on the economy. UBS provides over 350 billion Swiss francs ($384 billion) in credit to the Swiss economy.