Reports in US suggest Swiss regulators want UBS and Credit Suisse either to hold much more capital or relocate parts of their business to lessen risk to Switzerland's taxpayers
UBS could move the headquarters of its investment bank to London to avoid tough capital requirements being planned by the Swiss authorities, according to reports in the US.
A move to London from its Zurich headquarters would allow the bank to minimise the capital it keeps to protect against a repeat of the near collapse it suffered in 2008.
UBS was a major buyer of mortgage-backed securities based on sub-prime mortgages, which suffered huge losses in the wake of the Lehman Brothers collapse in the US.
According to sources quoted in the Wall Street Journal, Swiss financial regulators want UBS either to hold sharply higher amounts of capital, or to ringfence its investment banking operations against default by moving them to a rival jurisdiction such as London, Singapore or New York.
Regulators have already indicated they need to charge an extra levy on UBS and the other main Swiss bank, Credit Suisse, to protect local taxpayers from a default.
The banks, considered "too big to fail" by the Swiss government, must either sharply increase the amount of assets they keep as an insurance policy to 19% of lending, or move some or all of their operations to a financial centre with less stringent regulations.
Plans to demolish part of the Broadgate complex in the City to make way for a new home for UBS's main investment bank operations has fuelled speculation that the bank is considering a fundamental move from Zurich.
All major banks are lobbying hard to make sure that their local regulator minimise capital requirements.
An agreement by banking regulators under the Basel III accord insists that banks conform to minimum capital requirements by 2019. But earlier this week, the European Union's internal market commissioner, Michel Barnier, stepped into the debate by warning of the potential downside from adopting rigid rules based on Basel III.
Barnier fears European banks could become uncompetitive if they are forced to adopt higher capital rules than rival banks in the US or Asia.
The Swiss authorities are also known to be concerned at the effect of draconian regulation on the country's banking industry, but believe they have little choice when faced with the cataclysmic possibility of another collapse.
UBS said it was considering different ways to cope with new regulations, but ruled out spinning off its investment bank, saying that part of the business was integral to its future.
A spokesman also pointed out that Swiss law prevented a break-up of the bank. He said: "There are no easy solutions to circumvent tough Swiss regulation, in our view."
Around Sfr 100bn (£70.5bn) of the investment bank's balance sheet is funded through retail deposits and savings in its wealth management business.
The spokesman said: "To ensure a full ring-fencing of the investment bank under a Swiss holding structure, insolvency law would also have to be changed as current laws apply an enforced solidarity."