Is UBS now too big a risk for Switzerland after absorbing Credit Suisse? Should the banking giant contemplate relocating its headquarters abroad? finews.com editor-in-chief Dominik Buholzer argues why this may not be a refined solution.
Recently, during a dinner conversation, a guest remarked, «With all this talk about UBS potentially relocating abroad, I see it as an opportunity.» The argument was simple: the risks for Switzerland are too significant, and it would be more comfortable if UBS moved its headquarters out of the country.
While my counterpart did not claim to be an expert, similar sentiments have been echoed by professionals in the field.
Lessons From Ireland and Iceland
In a guest commentary for the «Neue Zürcher Zeitung», Georg Junge, a former Managing Director in Credit Risk Control at UBS and regulatory expert at FINMA, used the examples of Ireland and Iceland to illustrate how catastrophic banking crises can be for small economies.
«Both countries were unable to shoulder the debts of their overly exposed banks and had to seek external assistance. The price was steep: loss of fiscal and monetary independence, deep recessions, and prolonged high unemployment rates,» Junge wrote.
He warned that a similar scenario could arise if Switzerland were forced to rescue UBS, pushing the country into a dire economic crisis. In his view, UBS is too big to save. Junge proposed relocating UBS’s headquarters abroad as a potential solution.
Relocation: A Risky Proposal
A similar argument was recently made by Peter Bodenmann, former president of Switzerland’s Social Democratic Party, in «Weltwoche». Bodenmann suggested the United States as a potential new home for UBS, stating, «If UBS were to fail in the U.S., it would mean as much to the world's strongest economy as a local cantonal bank failure would in Switzerland.»
At first glance, moving UBS’s headquarters abroad may seem like an elegant solution—shifting the risk away from Switzerland while allowing UBS to retain a strong domestic presence. However, the consequences of such a move would likely be far-reaching and disruptive.
Long-Term Implications
The Swiss financial sector would face a significant loss of prestige if its largest bank fled the country. UBS and its predecessor institutions have been integral to the evolution of Switzerland's financial center, driving innovations and developments that benefit the entire Swiss economy.
Relocating UBS would inevitably damage Switzerland’s reputation as an attractive financial hub, potentially deterring international investors and businesses. Thousands of jobs—both directly at UBS and indirectly through suppliers and service providers—would be lost. Moreover, many highly skilled professionals would likely leave the country.
Multinational Swiss companies, which rely on globally capable banks, might also reconsider their connection to Switzerland if no domestic institution could meet their needs. This could erode the ties between these firms and their home market.
Balancing Regulation and Resilience
UBS is one of Switzerland’s largest taxpayers. Moving its headquarters would lead to significant tax revenue losses at federal, cantonal, and municipal levels, a burden that would ultimately fall on Swiss citizens.
While discussions about addressing the too-big-to-fail issue are essential, proposed measures must strike a balance between reducing risk and maintaining operational flexibility for major banks. Overly restrictive regulations could hinder their ability to generate the substantial profits needed to remain resilient.
Strengthening Competition
Instead of focusing on relocating UBS or solely tightening regulations, Switzerland should foster an environment that allows other banks to grow and compete with UBS. Reducing reliance on a single institution would mitigate the «concentration risk» UBS poses to the Swiss economy.
Privatizing PostFinance, for example, could be a step in the right direction, enabling the development of a more diverse and competitive banking sector.
Conclusion
While the risks associated with UBS's size and influence should not be underestimated, moving its headquarters abroad is not a sustainable solution. Instead, Switzerland should focus on creating a robust financial ecosystem that supports healthy competition, fosters innovation, and ensures resilience within its banking sector. Only then can the country mitigate systemic risks without sacrificing its position as a leading global financial center.
