Finance

Wall Street’s fear gauge — the VIX — saw second-biggest spike ever on Wednesday

Published

6 months ago

December 19, 2024

A television station broadcasts the Federal Reserve’s interest-rate cut on the floor of the New York Stock Exchange (NYSE) in New York, US, on Wednesday, Dec. 18, 2024.

Michael Nagle | Bloomberg | Getty Images

Wall Street’s fear gauge — the VIX — spiked by the second biggest percentage in its history on Wednesday, after the Federal Reserve jolted the stock market by saying it would dial back its rate-cutting campaign.

The CBOE Volatility Index surged 74% to close at 27.62, up from around 15 earlier in the day. That surge is the second-greatest in history, behind a 115% leap to above the 37 handle back in February 2018 when there was a blow-up in funds tracking the volatility index.

Wednesday’s move comes after the central bank said it will likely lower interest rates just twice next year, down from the four cuts it projected back in September, alarming investors who wanted low rates to keep fueling the bull market. The Dow Jones Industrial Average tumbled by 1,100 points to its 10th straight loss.

Typically, a value greater than 20 in the VIX indicates a higher level of fear in the market. However, for most of this year, the VIX had been suppressed below that level, worrying investors who believed the market had gotten overly complacent.

The VIX is calculated based on the prices of put and call options on the S&P 500. A spike could indicate a rush by investors to purchase put options for protection in a decline.

CBOE Volatility Index, 5 days

Still, there have been one other significant surge in the VIX in 2024. The third-biggest surge in the VIX in history occurred in Aug. 5, 2024, when fears of a U.S. recession, and a major unwind in the yen carry trade, spurred a roughly 65% increase in the VIX to close above 38. On an intraday basis, the VIX briefly topped 65 that day.

On Thursday, the VIX was last floating just above the 20 handle, down more than 25% from the prior day.

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Swiss government proposes tough new capital rules in major blow to UBS

Published

3 days ago

June 6, 2025

Business Finance News

A sign in German that reads “part of the UBS group” in Basel on May 5, 2025.

Fabrice Coffrini | AFP | Getty Images

The Swiss government on Friday proposed strict new capital rules that would require banking giant UBS to hold an additional $26 billion in core capital, following its 2023 takeover of stricken rival Credit Suisse.

The measures would also mean that UBS will need to fully capitalize its foreign units and carry out fewer share buybacks.

“The rise in the going-concern requirement needs to be met with up to USD 26 billion of CET1 capital, to allow the AT1 bond holdings to be reduced by around USD 8 billion,” the government said in a Friday statement, referring to UBS’ holding of Additional Tier 1 (AT1) bonds.

The Swiss National Bank said it supported the measures from the government as they will “significantly strengthen” UBS’ resilience.

“As well as reducing the likelihood of a large systemically important bank such as UBS getting into financial distress, this measure also increases a bank’s room for manoeuvre to stabilise itself in a crisis through its own efforts. This makes it less likely that UBS has to be bailed out by the government in the event of a crisis,” SNB said in a Friday statement.

‘Too big to fail’

UBS has been battling the specter of tighter capital rules since acquiring the country’s second-largest bank at a cut-price following years of strategic errors, mismanagement and scandals at Credit Suisse.

The shock demise of the banking giant also brought Swiss financial regulator FINMA under fire for its perceived scarce supervision of the bank and the ultimate timing of its intervention.

Swiss regulators argue that UBS must have stronger capital requirements to safeguard the national economy and financial system, given the bank’s balance topped $1.7 trillion in 2023, roughly double the projected Swiss economic output of last year. UBS insists it is not “too big to fail” and that the additional capital requirements — set to drain its cash liquidity — will impact the bank’s competitiveness.

At the heart of the standoff are pressing concerns over UBS’ ability to buffer any prospective losses at its foreign units, where it has, until now, had the duty to back 60% of capital with capital at the parent bank.

Higher capital requirements can whittle down a bank’s balance sheet and credit supply by bolstering a lender’s funding costs and choking off their willingness to lend — as well as waning their appetite for risk. For shareholders, of note will be the potential impact on discretionary funds available for distribution, including dividends, share buybacks and bonus payments.

“While winding down Credit Suisse’s legacy businesses should free up capital and reduce costs for UBS, much of these gains could be absorbed by stricter regulatory demands,” Johann Scholtz, senior equity analyst at Morningstar, said in a note preceding the FINMA announcement.

“Such measures may place UBS’s capital requirements well above those faced by rivals in the United States, putting pressure on returns and reducing prospects for narrowing its long-term valuation gap. Even its long-standing premium rating relative to the European banking sector has recently evaporated.”