Download The Swiss Banking System

Riga, Monday, March 28 2011
Dr. Bert Wolfs
Academic Dean
SBS Swiss Business School
The Swiss Banking System
Swiss National Bank
The «Big Banks»
Cantonal Banks
Raiffeisen Group
Foreign Banks
Private Banks
Basel III Agreement
The Swiss National
Bank
The Swiss National Bank
 The Swiss National Bank (SNB) was established in 1907
 The SNB has two headquarters in Bern and Zurich
 In 2003 the legal status of the bank changed: with the National
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Bank Act the SNB has a unique independent status, it reports to
the Federal Council, Parliament and the public
SNB is responsible for designing and implementing the Swiss
monetary policy
Main objective: maintain price stability
The SNB is responsible for the Swiss foreign exchange and gold
reserves
SNB promote financial stability in the country
Monetary Policy of the Swiss
National Bank
 The main goal of the SNB is to sustain stable prices
avoiding inflationary or deflationary price shocks
 Bank target is to keep the inflation of less 2%
annually
 To achieve price stability the SNB controls the money
supply in the economy by influencing short term loan
interest rates
Financial System Stability
 The SNB monitors and analyses all financial markets in
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order to detect conditions that might threaten the integrity
of the system
The SNB also supervises the Swiss payment and settlement
systems
The SNB may act as a lender of last resort to Swiss banks
having liquidity solvency problem
The SNB is the sole issuer of banknotes in Switzerland
The Swiss franc has long been considered to be a great
store of value due to the neutrality of the country and its
strong banking system
The Private Banking System in
Switzerland
 The Swiss banking system is based on the concept of
universal banking, whereby all banks can offer all
banking services (i.e. asset management,
credit/lending, deposit business, financial analysis,
etc…)
 This system is the opposite as the English-speaking
countries and Japan one where commercial banking is
separated from investment banking
 The main advantage of the Swiss System is to spread
the risk over a greater number of banking businesses
and customers from all sectors of the economy
Specialized Bank Groups
Several bank groups are now fully or partially specialized
in Switzerland:
 The “big banks” (UBS and Credit Suisse)
 Cantonal banks
 Raiffeisen Group
 Private banks
 Foreign banks
Specialized Bank
Groups
The «Big Banks»
• UBS and Credit Suisse account together for over
50% of the balance sheet total of all banks in
Switzerland
• UBS is the world’s leader in wealth management
and leading in Switzerland for individual and
corporate clients
• Credit Suisse is renewed for providing expert
advice, holistic solution and innovative products to
a wide range of corporate and institutional clients
and high-net-worth individuals globally
Cantonal banks
• Today there are a total of 24 Cantonal Banks (Switzerland
has 26 cantons and half-cantons)
• Status: semi-governmental organizations with stateguarantee (liberalization on the state-guarantee is
underway)
• Their objective is to promote the cantons’ economy
• Field of activity: all banking business with a focus on
lending/deposit business
Raiffeisen Group
• The Raiffeisen Groups is structured as a cooperative and is
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one of the leading retail banks in Switzerland
In recent years the Raiffeisen Group has positioned itself as
the third large bank group in Switzerland
3 millions of Swiss citizens are customers of the Raiffeisen
Group (population in Switzerland is less than 8 millions)
1.4 million are members of the cooperative and therefore
co-owners of their Raiffeisen Bank
Benefits of Raiffeisen: proximity to the customer, support,
exclusive benefits for members of the cooperative
Private Banks
 Private banks are among the oldest banks in
Switzerland
 Legal form: individually owned firms, collective and
limited partnerships
 Field of activity: asset management, chiefly for private
clients
 As a rule private banks do not publicly offer to accept
saving deposits
Foreign banks
• Foreign control means that over half of the
company’s votes are held by foreigners with
qualified interests
• Major Banks’ origin: EU members (50%) and
Japan (around 20%)
• Fields of activity: foreign business and asset
management
The Basel III
Framework
Background: Basel i and ii
 Basel i was developed in 1988 when the Basel
Committee on Banking Supervision published a set of
minimal capital requirements for banks mainly
focused on credit risk
 Basel ii was designed in 2004 in order to create
international standard on bank’s capital
requirerements
Basel iii
 Basel iii is the third set of banking rules agreed by central
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bankers and regulators from around the world at meetings
in Basel in September 2010
These new set of rules were formulated in order to prevent
a repeat of the 2009 global financial crisis
According to the Basel iii framework, banks have to raise
hundreds of billions of euros in fresh capital over the
next years
Banks will have to increase their core tier-one capital ratio
– a key measure of bank’s financial strength – to 4.5% by
2015
They will also have to carry a further «counter-cyclical»
capital conservation buffer of 2.5% by 2019
Basel iii
 The core idea of Basel iii is that if banks hold a bigger
capital cushion they will be better prepared for
another downturn in order to avoid a re-run of the
financial crisis
 Instead of holding capital equivalent to just 2% of
their risk-bearing assets, banks will have to hold 7% of
top quality capital in reserve
After Basel iii: further
developments in Switzerland
 Following the Basel iii new framework, the Swiss
government has set up a «too big to fail» commission
with the objective to propose rules which will limit the
risk that a bank failure would drag down the economy
 The group proposed that the two big banks (UBS and
Credit Suisse) would hold at least ten per cent of riskweighted assets in form of common equity
 In addition banks should hold another nine per cent
which could be contingent convertible (CoCo)
bonds taking the current total capital requirement to
19 per cent
Bank secrecy in
Switzerland: background
and current controversies
with the EU
Bank secrecy in Switzerland
 Bank secrecy was introduced in Swiss law in 1934
 In Switzerland, bank secrecy protects the financial
privacy of citizens from unauthorized access by third
parties or by the State
 France and Germany launched an attack on
Switzerland in October 2008 for allegedly helping
foreign tax evaders hide their assets
 The country has been under continuous attack over
the issue ever since
Bank secrecy in Switzerland:
criticisms
 In April 2009 the OECD placed Switzerland on a “grey list”
of uncooperative tax havens. The Swiss were removed in
September after renegotiating more than 12 double
taxation treaties, but they have refused to automatically
transfer information to tax investigators without proof of
wrong-doing
 In 2009 several countries, including Italy, France, Britain
and the US, launched tax amnesties in an effort to
repatriate assets from tax cheats
Bank secrecy in Switzerland:
criticisms
 The most damaging tax evasion case involved the
activities of UBS bank in the US. In February 2009,
UBS was fined $780 million after admitting
helping US citizens dodge taxes. It also handed
over data of 285 account holders
 In September 2009, the Swiss government agreed to
transfer the details of 4,450 UBS clients to the US – in
effect violating Swiss banking secrecy to prevent a
ruinous court case for UBS
EU- Swiss relations affected by the
tax issue
 Tax issues have marred bilateral relations between Switzerland and its
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biggest trading partner over the past few years
The EU has set the automatic exchange of information as a goal on
account holders’ details
I.e several cases of stolen data, allegedly revealing the identity of
German clients who dodged taxes by placing their money in Swiss bank
accounts, provoked further irritation
At the end of 2010 UK and Germany have launched negotiations aimed
at legalizing undeclared assets in Swiss accounts
These negotiations are seen a potential dampener for European Union
efforts to enforce the automatic exchange of information on account
holders’ details
Conclusions
Conclusions
 The Swiss Banking System is note for its variety
 The 2009 financial crisis hit the Swiss Banking System
revealing that Credit Suisse and UBS are too big for a
small country like Switzerland
 The country depends on banks and insurance (18% of
its GDP comes from the financial sector)
 The Swiss government responded designing stricter
rules for Swiss banks to avoid the risk of failure in case
of a new financial crisis
Conclusions
 At the end of 2010 UK and Germany have launched
bilateral negotiations with Switzerland on the tax
issue
 These bilateral negotiations undermine de facto the
EU common struggle for international tax
transparency