Switzerland’s finance minister isn’t mincing words. Karin Keller-Sutter publicly criticized a parliamentary committee’s decision to water down proposed capital requirements for UBS, calling the compromise a step backward from the government’s effort to shield taxpayers from another banking crisis.
The Swiss Council of States’ Economic Affairs and Taxation Committee voted 10-2, with one abstention, on August 31 for a deal that would let UBS back its foreign subsidiaries with just 50% Common Equity Tier 1 capital. The other half could be covered by Additional Tier 1 instruments, which are cheaper for banks but riskier for the system. The government’s original proposal demanded 100% CET1 backing.
What CET1 vs. AT1 actually means
Think of CET1 capital as a bank’s cash savings account: it’s the hardest, most reliable form of capital a bank holds. Retained earnings, common shares, the stuff that’s unambiguously there when things go sideways. AT1 instruments, by contrast, are more like IOUs with complicated fine print. They’re bonds that can be written down or converted to equity when a bank hits trouble.
If you were around for the Credit Suisse collapse in 2023, you might remember AT1 bonds making headlines for all the wrong reasons. Roughly $17 billion in AT1 bonds were wiped out when Swiss regulators orchestrated the emergency UBS takeover, a move that rattled global bond markets and sent investors scrambling to reassess how these instruments actually work in a crisis.
