Swiss Banks Face Stricter Capital Rules for Foreign Units

The Federal Council’s proposed amendments target a specific vulnerability in the current regulatory framework: the capital treatment of foreign subsidiaries. Under existing rules, systemically important banks in Switzerland have operated with varying levels of capital backing for their international operations. The new requirement for full capital coverage represents a fundamental shift in risk management philosophy, acknowledging that foreign subsidiaries can transmit financial stress back to the parent institution during periods of market turbulence.

The timing of this proposal is significant, coming nearly two decades after the global financial crisis that exposed weaknesses in cross-border banking supervision. By requiring full capital backing, Swiss authorities aim to create a more resilient financial system that can withstand shocks originating from international markets. The seven-year implementation period reflects recognition of the substantial operational and financial adjustments required by affected institutions.

The amendments specifically target systemically important banks, a designation that includes Switzerland’s largest financial institutions with significant international presence. These banks maintain extensive networks of foreign subsidiaries across global financial centers, from London and New York to Singapore and Hong Kong. The requirement for full capital backing will fundamentally alter how these institutions allocate resources across their international operations.

For Swiss banks with substantial foreign subsidiary portfolios, the phased implementation provides crucial breathing room to adjust their capital structures. The incremental approach over seven years allows institutions to manage the transition without triggering immediate liquidity pressures or forced asset sales. However, the long-term impact will likely include higher capital reserves, potentially affecting profitability metrics and return-on-equity targets that have guided investor expectations for years.

The changes also raise strategic questions about the future of Swiss banks’ international expansion. While the amendments don’t prohibit foreign operations, they make maintaining extensive subsidiary networks more capital-intensive. This could prompt institutions to reconsider their geographic footprints, potentially favoring markets where subsidiary operations generate sufficient returns to justify the increased capital requirements.

The consultation period running until January 9, 2026, represents a critical opportunity for stakeholders to shape the final regulations. Banks, industry associations, consumer groups, and international regulatory bodies will all have voice in the process. The extended consultation timeline—approximately three and a half months—suggests the Federal Council anticipates substantial feedback on the technical implementation details.

Following the consultation closure, the Federal Council will review submissions and potentially modify the proposal before submitting final legislation to Parliament. The seven-year transition period, while lengthy, aligns with typical implementation timelines for major capital regulation changes in international banking. This extended runway acknowledges the complexity of recalibrating global operations and capital structures while maintaining financial stability during the transition.

The proposed amendments to the Banking Act and Capital Adequacy Ordinance represent Switzerland’s latest move to strengthen its financial system following international standards while addressing specific risks identified in its domestic banking landscape. As the consultation progresses, the financial community will be watching closely to see how these proposals evolve and what they ultimately mean for the global competitiveness of Swiss banking institutions.