Too Big To Fail, Too Important To Regulate

A large bank being asked to hold more capital has reached the delicate stage of the conversation where everybody notices the suitcase by the door.

Reuters reports today that the Swiss Bank Employees Association has warned lawmakers that a UBS relocation, sale or merger could put 10,000 to 12,000 Swiss jobs at risk. The association calls that a worst-case scenario. UBS says it wants to remain in Switzerland and declined to comment on the estimate.

So the bank has not announced that it is leaving. The suitcase is currently performing a valuable advisory function.

The dispute concerns how much capital UBS should hold against its foreign subsidiaries. Lawmakers want a larger financial cushion. The bank considers the proposed requirement excessive. Somewhere between those positions sit employees who would prefer that their livelihood not become the upholstery in a discussion about cushions.

There is a familiar negotiating technique here: place the least powerful people in the room between the regulator and the institution. Now any attempt to make the institution safer must first explain itself to thousands of workers. The people deciding where the headquarters goes can remain tastefully out of the line of fire.

This is particularly elegant after the bank absorbed Credit Suisse, whose 2023 collapse did not exactly settle the case for leaving financial giants to their own excellent judgment.

The employees' association is right to worry about jobs. Those are real lives, not decorative figures in a press release. It also says UBS has a duty to commit to Switzerland. That part deserves the same volume as the warning directed at lawmakers.

Otherwise the public debate starts sounding like a building inspector being told that installing fire exits might upset the landlord, who could respond by taking the tenants somewhere else. Everyone agrees that tenant welfare is paramount. The landlord would appreciate it if that ended the inspection.

A workable compromise requires actual scrutiny of the capital rules and their consequences. It should not require treating a corporation's willingness to stay as an act of volunteer work.

Perhaps Switzerland could compromise on the suitcase. Require it to contain enough money to cover the next emergency before anybody wheels it toward the exit.

Source: Reuters, October 25. The suitcase and building inspection are satirical analogies, not reported events.