**UBS Benefits from Implicit State Guarantee, Study Reveals**
A recent study from the University of Bern has found that Swiss bank UBS has effectively benefited from a state guarantee, resulting in cost reductions amounting to billions. Published on January 29, the study contributes to ongoing discussions regarding banking regulation as Swiss parliament considers reforms following the 2023 collapse of Credit Suisse and its subsequent acquisition by UBS, a long-time competitor.
The University of Bern’s research focused on Switzerland’s plans to establish a public liquidity backstop (PLB) aimed at safeguarding systemically important banks during crises. The findings indicate that UBS’s designation as a “too big to fail” lender equates to a state guarantee, which lowered the bank’s funding costs by at least $2.9 billion in 2022.
In response to the report, UBS referred to previous comments made by CEO Sergio Ermotti, who has contested the notion of the bank having such a guarantee. Ermotti stated in 2024 that UBS has the capacity to absorb losses of $200 billion and does not depend on taxpayers to assume risks.
The 32-page study asserts that a government guarantee for liquidity support, similar to other too-big-to-fail (TBTF) policies, effectively subsidizes non-convertible bond financing for systemically important banks (SIBs). This dynamic encourages a funding model characterized by high leverage, which, when coupled with limited liability, distorts the incentives for shareholders and management.
Swiss Finance Minister Karin Keller-Sutter expressed in April her belief that UBS possesses an implicit state guarantee. To finance the PLB, the government suggested in 2023 that a fee ranging from 70 million to 210 million Swiss francs (approximately $77 million to $232 million) would have been appropriate for its five SIBs in 2022. The acquisition of Credit Suisse by UBS was facilitated with the backing of Swiss authorities, resulting in a bank with a balance sheet significantly larger than the Swiss economy and prompting calls for stricter regulation of the merged entity.
