By Ariane Luthi and John O'Donnell

BERN (Reuters) -Switzerland announced reforms on Friday to make its biggest bank UBS safer and avoid another crisis, hampering the global ambitions of a lender whose financial weight eclipses the country's economy.

UBS emerged as Switzerland's sole global bank more than two years ago after the government hastily arranged its rescue of scandal-hit Credit Suisse to prevent a disorderly collapse.

The demise of Credit Suisse, one of the world's biggest banks, rattled global markets and blindsided officials and regulators, whose struggle to steer the lender as it lurched from one scandal to the next underscored their weakness.

On Friday, speaking from the same podium where she had announced the Credit Suisse rescue in 2023 as finance minister, Switzerland's president Karin Keller-Sutter delivered a firm message. The country would not be wrongfooted again.

"I don't believe that the competitiveness will be impaired, but it is true that growth abroad will become more expensive," Keller-Sutter said of UBS.

"We've had two crises. 2008 and 2023," she said. "If you see something that is broken, you have to fix it."

During the global financial crisis of 2008, UBS was hit by a losses in subprime debt, as a disastrous expansion into riskier investment banking forced it to write down tens of billions of dollars and ultimately turn to the state for help.

Memories of that crisis also linger, reinforcing the government's resolve after the collapse of Credit Suisse.

For UBS, which has a financial balance sheet of around $1.7 trillion, far bigger than the Swiss economy, the implications of the reforms proposed on Friday are clear. Switzerland no longer wants to back its international growth.

"Bottom line: who is carrying the risk for growth abroad?" said Keller-Sutter. "The bank, its owners or the state?"

The rules the government proposed demand that UBS in Switzerland holds more capital to cover risks in its foreign operations.

That move, one of the most important steps taken by the Swiss in a series of otherwise piecemeal measures, will make UBS's businesses abroad more expensive to run for one of the globe's largest banks for millionaires and billionaires.

Following publication of the reform plans, UBS Chairman Colm Kelleher and CEO Sergio Ermotti said in an internal memo that if fully implemented, they would undermine the bank's "global competitive footprint" and hurt the Swiss economy.

STRATEGY

The reform would require UBS to hold as much as $26 billion in extra capital.