With the signing of the agreement on Friday, the historic takeover clears one of the final, decisive hurdles. It covers a specific portfolio of Credit Suisse balance sheet items, which corresponds to around 3 percent of the merged bank's total assets, the Federal Council announced.

UBS saved the smaller local rival from inevitable bankruptcy with the takeover announced in March. Although UBS only pays around 3 billion Swiss francs for Credit Suisse, it had also pushed for protection against losses that were difficult to predict, as there was no time for a proper audit. The merger of the two financial institutions is expected to be completed on Monday. Their combined balance sheet total is twice as large as Switzerland's annual economic output.

Under the agreement, UBS will cover the first 5 billion francs in losses from the portfolio, while the state will step in for the next 9 billion francs. The portfolio mainly includes loans, derivatives, legacy assets and structured products from Credit Suisse's non-core business, the government said.

When calculating losses, a net approach is chosen, which means that any gains from the portfolio are offset. The government stated that the "priority" was to minimise potential losses and to avoid using the guarantee as much as possible. UBS CEO Sergio Ermotti also recently said that losses for the state in the deal were "extremely unlikely".

The agreement will remain in force until the portfolio is finally wound up and will require UBS to pay fees to the state, including an initial set-up fee of 40 million Swiss francs and an annual fee of 0.4 percent of the 9 billion Swiss francs guaranteed amount.

The government will have some say in the management of the assets and will also get a seat on a newly formed supervisory committee, UBS announced earlier this week.