01 · THE DECISION

The committee kept full coverage but changed the capital mix.

The Economic Affairs and Taxation Committee of the Swiss Council of States (WAK-S) has proposed a different capital treatment for foreign subsidiaries of systemically important banks. The committee met on 31 August 2026 and published its decision on 1 September.

Under the Federal Council's proposal, the carrying value of foreign subsidiaries would have to be fully backed with Common Equity Tier 1 capital, or CET1, at the Swiss parent bank. The committee still wants the holdings fully covered, but with Tier 1 capital rather than CET1 alone. Its announcement says AT1 instruments could account for no more than half.

The provisional committee text is more precise: 50% of each relevant foreign participation would be deducted from CET1, while the remaining part could be deducted from either CET1 or Additional Tier 1 capital, known as AT1.

THE CHANGE IN ONE SENTENCE

The committee is not abandoning full capital coverage; it is proposing that up to half of it may come from AT1 instead of requiring CET1 for the entire amount.

This is therefore a ceiling on AT1, not a mandatory fixed 50/50 split for every bank.

02 · THE FEDERAL COUNCIL'S PLAN

The April proposal relied entirely on CET1.

The Federal Council's dispatch of 22 April 2026 proposed full CET1 backing for participations in foreign subsidiaries. Its stated purpose was to ensure that losses in a foreign subsidiary would not immediately weaken the capital ratios of the Swiss parent and to make foreign units easier to sell during a recovery phase.

The statutory wording applies to systemically important banks, but the Federal Council said that only UBS was currently affected to a significant extent. Based on the structure at the time, the authorities estimated that their package would strengthen CET1 at the UBS parent by about USD 20 billion. They also estimated that the immediate CET1 shortfall would have been about USD 9 billion had the rules applied on 1 January 2026.

Those figures are not a forecast of what UBS will ultimately have to raise. The Federal Council stressed that the result depends on the bank's future size, structure, business model, foreign operations and capital decisions. The committee's later AT1 option changes the proposed composition of the backing, so the April estimates cannot simply be carried across to the amended text.

03 · HOW THE AT1 SAFEGUARDS WOULD WORK

The compromise comes with earlier restrictions when CET1 falls short.

CET1 is the highest-quality layer of a bank's regulatory capital. AT1 sits below it within Tier 1 capital and is designed to absorb losses, but the treatment of AT1 during the Credit Suisse crisis remains central to the political dispute over the new rules.

The committee couples its AT1 option with a proposed stabilisation mechanism. Under the provisional text, if a bank falls below its applicable CET1 requirement, it would have to stop repaying or buying back AT1 instruments and stop interest payments and other distributions to AT1 holders. Dividends, share buybacks and comparable capital distributions would also be suspended, while variable remuneration would have to be reduced.

If an internationally active systemically important bank failed to restore its CET1 position within six months, the draft would require further measures. These could include a capital increase and an offer to exchange or convert AT1 instruments.

The provisional text does not establish a universal 11% trigger. It ties the mechanism to the bank's applicable CET1 requirement, including the higher risk-weighted CET1 requirement for a systemically important bank at consolidated group level.

04 · WHAT THE VOTES SHOW

The compromise passed narrowly before the amended bill passed comfortably.

The committee supported the core CET1-and-AT1 concept by 7 votes to 5, with one abstention. It then approved the amended bill as a whole by 10 votes to 2, again with one abstention.

Those are different decisions. The 10–2 result should not be described as the vote on the AT1 compromise itself. The narrower 7–5 vote shows that the proposed role of AT1 remains contested even though the committee ultimately sent the full amended package forward with a larger majority.

The majority presents the arrangement as a balance between financial stability and the international competitiveness of UBS. Opponents inside the committee argue that AT1 may not absorb losses reliably enough in a crisis and prefer a larger CET1 share.

05 · WHAT THIS MEANS FOR UBS CLIENTS

Nothing changes for account holders at this stage.

The proposal concerns the prudential capital held by a Swiss parent bank against participations in foreign group companies. It does not alter UBS account eligibility, fees, service terms, deposit protection or cross-border onboarding rules.

There is also no new requirement for clients to move money, change accounts or take any other action. Any commercial consequences for UBS would depend on the final legislation, its implementation and the bank's own response. Treating a possible reduction in the pure-CET1 burden as an immediate customer benefit would go beyond the available evidence.

06 · WHAT HAPPENS NEXT

The Council of States still has to decide.

The committee's recommendation is not enacted law. The Council of States is due to consider the Banking Act amendment during the autumn session, where minority proposals can also be put to a vote. Further parliamentary steps would follow before a final statutory outcome.

The point to watch is now clear: whether Parliament accepts full CET1 backing, permits AT1 for part of the requirement, or chooses another mix. Until that process is complete, both the Federal Council's original model and the committee's compromise remain proposals.