Markus Ronner: «Size Alone Does Not Constitute a Risk»
In the past 20 years, Switzerland has had to rescue a major bank twice. Now, only UBS remains, with total assets of around 1.4 trillion francs. UBS is often considered «too big to save.» Do you understand why the Federal Council wants to limit the risk for the public?
I understand that people have concerns about UBS's size, given past crises. However, this discussion often overlooks the fact that size alone does not constitute a risk. We must look deeper and differentiate. Since the financial crisis, we have significantly changed our strategy and business model, focusing on the Swiss bank and international wealth management. At the time of the global financial crisis, the combined balance sheet of UBS and CS was about $3.7 trillion, with the investment bank accounting for roughly 75 percent.
How does that compare to today?
Today, the balance sheet is around $1.5 trillion, and the investment bank accounts for a maximum of 25 percent. UBS has a clear strategy aligned with the Swiss financial center, enabling it to operate successfully internationally despite having a relatively small home market. Sixty percent of our revenue comes from wealth and asset management, with another 20 percent from Swiss retail and corporate banking. Since announcing the CS acquisition, we have further reduced the risk allocation to the investment bank from 35 percent to a maximum of 25 percent.
What does this mean for the risk borne by Switzerland?
UBS is not only much smaller than before the financial crisis but also has a significantly lower risk profile. Additionally, UBS has a very strong capitalization, both in absolute terms and relative to its risk profile and international peers. UBS has made significant investments in stabilization and resolution measures, including 1.5 billion francs in legal structures and additional billions to build nearly 100 billion francs in convertible debt that can be turned into equity during a severe crisis. Finma reaffirmed UBS’s resolvability in October 2024. We are confident that these measures, along with our sustainably profitable and globally diversified business model, provide the foundation for effective crisis management, ensuring that neither the state nor taxpayers would suffer in a crisis.
«UBS is not only much smaller than before the financial crisis but also has a lower risk profile.»
Is the Federal Council’s proposal to strengthen capital requirements for foreign subsidiaries within the parent company inconsistent with the international interconnections of a major bank?
The parent company of Credit Suisse (CS) faced significant write-downs on foreign subsidiaries between 2019 and 2022, totaling over 40 billion francs—approximately two-thirds of their value. This was necessary for two key reasons: first, the initial valuation was overly aggressive, relying on forward-looking earnings from an unsustainable business model; second, the regulatory filter inflated the valuation by up to 15 billion francs. Additionally, these subsidiaries were substantially undercapitalized, holding around 20 billion francs instead of the required 40 billion francs. However, CS had been granted a ten-year transition period by regulators to gradually build up capitalization in line with regulatory requirements.
What would be a sensible approach in your view?
In our view, holdings must be valued conservatively, and existing capital requirements must be consistently enforced. However, we firmly reject the full deduction of subsidiaries from core capital. Such an extreme measure would be unjustifiable, as there is no realistic scenario in which an international bank would have to write down all foreign subsidiaries to zero simultaneously while continuing to operate. In such an extreme situation, the bank would enter resolution, as it would no longer be able to operate and would have to rely on the designated resolution resources. This drastic measure would not only be entirely unjustified but would also lead to massive additional costs.
