On Tuesday, a Swiss Social Democratic Party politician suggested shrinking UBS (UBSG.S) assets after its merger with Credit Suisse (CSGN.S) to avoid another costly state-backed bailout.
In an interview with the Swiss daily Aargauer Zeitung, Samira Marti proposed a solution, although its viability remained unclear.
Marti said the combined bank’s 1.5 trillion Swiss franc balance sheet—roughly treble the Swiss economy—poses huge risks to the government, especially since it has an implicit state guarantee.
The left-leaning party will propose capping the bank’s holdings at half of Switzerland’s GDP, forcing the new UBS to cut its assets by a fourth.
“That would be a drastic reduction, but from the taxpayer’s point of view, it’s necessary,” she added.
Before parliament debates the idea, the Swiss cabinet must give a recommendation.
Social Democrats are the second-largest party in the lower chamber, although they need help from other parties. The Swiss People’s Party, with 53 lower house seats, supported the Social Democrats in rejecting the merger aid package last month and calling for no more taxpayer-funded bank bailouts.
The two parties would remain short of a majority, and several analysts called the proposal unrealistic and more about tapping into public frustration with banks before of national elections in October.
UBS declined to comment. “Very shortly,” Chairman Colm Kelleher said last week, the firm will finalize the Credit Suisse deal.
UBS Chief Executive Sergio Ermotti, who led the massive merger, has downplayed concerns the combined bank will be too huge for Switzerland.
“Even putting UBS and Credit Suisse together, we won’t be at the top of the classification for international banks in terms of size,” Ermotti told Il Sole 24 Ore last month.
He also claimed a bank’s business style and risks mattered more than its size.
Social Democrats considered raising capital requirements if the bank’s assets exceeded 50% of Swiss GDP.
Marti said her party’s proposal would mandate a 30% equity ratio for any element of UBS’s balance sheet above that threshold.
Marti told the publication UBS should shrink. “We must improve to reduce bank crisis vulnerability.”
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