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Finance
Letâs learn from past failures before rushing to regulate, says UBS CEO
Switzerland should learn from the post-mortem into what drove the collapse of Credit Suisse before rushing to impose further regulation, the Group CEO of UBS said in a wide-ranging discussion on the future of Switzerlandâs financial center and Europeâs competitiveness, hosted by the IMD Alumni Club of Lausanne.
The collapse of Credit Suisse in March 2023 was a crisis that had been years in the making, driven by the bankâs failures and partly enabled by exceptions and regulatory leniency, said UBS CEO Sergio Ermotti. As discussions about stricter capital requirements gain momentum in Switzerland, he said the question politicians and regulators should be asking is: why wasnât the existing regulation fully enforced?
âWhy was Credit Suisse allowed to go on for so long in such a precarious condition without any intervention? Thatâs the question. The markets flagged it already in 2019 and 2020. Even if you forget about the stock price, thereâs still the funding level, profitability, and reputation. Things were going badly for years,â he said.
Just as we donât rewrite laws every time a crime is committed, we shouldnât rush to impose new financial rules before understanding what went wrong, Ermotti added.
âThis is a classical case in which, of course, we may need to reshape some elements of our regime in terms of quality, but we definitely donât believe that quantity is an issue,â he said, noting that UBS already meets the highest minimum capital requirements in the world.
More regulation means higher costs for banking services, including credit â costs that ultimately impact businesses and consumers alike and shouldnât be overlooked. While the collapse of Credit Suisse was a tragedy, Ermotti said we should not allow a âculture of fearâ to dominate the debate.
Balance sheet size alone is not a measure of risk
Ermotti noted that UBS today operates with a $1.5tn balance sheet, significantly smaller than the $3.9tn combined balance sheet UBS and Credit Suisse had in 2007 when 75% of assets were tied to investment banking â a figure that has now dropped to 29%.
Today, 60% of UBS’s revenue comes from wealth and asset management, while also operating Switzerlandâs leading bank and granting around CHF 350bn in credit to households and companies in Switzerland. The bank is also much safer than in the past. For example, UBS has $185bn in total loss-absorbing capacity today â equivalent to almost four times the write-downs UBS incurred in the years following the global financial crisis. Referring to an often-cited metric, Ermotti said the size of a bankâs balance sheet alone is not a reliable measure of risk.
Switzerland shouldnât be complacent
Switzerland owes its success as a competitive financial center to years of hard work. âWe need to make sure that we donât throw it away and pretend that weâll just be successful forever. We need to stay competitive,â Ermotti said.
This means maintaining a competitive regulatory framework, embracing innovation, and remaining attractive to international talent. âIf we fully understand these dynamics, then we have a good chance to continue to be one of the leading financial sectors.â
While Switzerland may be a relative island of wealth that punches above its weight within Europe â with a GDP per capita that is double that of its neighbors â itâs important not to get complacent, Ermotti said. In fact, competing financial centers, such as Hong Kong and Singapore, are growing at a faster pace than Switzerland.
I was very disappointed that Europe didnât use Brexit as a catalyst for thinking about its future because it was, in effect, a wake-up call.Sergio Ermotti
Europe failed to use the catalyst of Brexit to reform
Addressing the current geopolitical landscape, Ermotti emphasized that policy shifts from the US administration may push Europe toward much-needed reforms â including a unified defense, a coherent foreign policy, and a more efficient decision-making system â to remain globally relevant.
âI was very disappointed that Europe didnât use Brexit as a catalyst for thinking about its future because it was, in effect, a wake-up call,â he said. Now, the growing debate around defense could serve as a turning point for Europe to realize that being a superpower on paper is not enough. He urged European leaders to look to Switzerland and the US as models for a more federal approach to governance and policy coordination.
However, bureaucracy continues to stifle European growth, with SMEs struggling under excessive regulation, particularly in areas like climate policy. Without a capital markets union and a banking union, Europe lacks the financial strength to secure its future and efficiently allocate capital to strategic investments, Ermotti warned.
Another potential catalyst for change could come from technological advancements, particularly in artificial intelligence. Ermotti stressed that AI will reshape the world over the next decade in ways we still underestimate â and that Europe must be prepared to embrace this transformation.
Courage as a key leadership skill
Reflecting on his career, Ermotti emphasized the importance of stepping outside oneâs comfort zone and having the courage to take on new challenges.
âIf I think about my career, there were some moments when I had to exercise âpositive courageâ and some moments when I had to exercise ânegative courage.â This entails responding to a negative situation and taking action that meant creating huge discontinuity to me, such as leaving something that I liked to do because I couldnât stand certain situations,â he said.
Ermotti, who once dreamed of becoming a professional soccer player, initially saw banking as a backup plan. A stroke of luck placed him in the securities department, where he gained early exposure to global economic dynamics through the movement of stocks, bonds, and currencies â an experience that shaped his career. âIn banking today, itâs still the case. You have a chance to see many aspects of the world economy, you are at the center.â
Despite rapid advances in AI raising questions about the future of work, Ermotti remains confident that banking will remain a people-centric industry, stressing that itâs still a good place to build a career. âYou need to have an intellectual ability to constantly learn and evolve. I think banking is still a good place to go.â
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