Banking in Switzerland began in the early 18th century through merchant trade and has, over the centuries, grown into a complex, regulated, and international industry. Along with the Swiss Alps, chocolate, watchmaking and mountaineering, banking is seen as emblematic of Switzerland.
Most Swiss banking is regulated by the Swiss Financial Market Supervisory Authority (FINMA), and the Swiss National Bank (NSB) which derives its authority from a series of federal statutes. The country's tradition of bank secrecy, which dates to the Middle Ages, was first codified in the Federal Act on Banks and Savings Banks, colloquially known as the Banking Law of 1934. The regime of bank secrecy that Swiss banks are famous for came under pressure in the wake of the UBS tax evasion scandal and the 1934 banking law was amended in 2009 to limit tax evasion by non-Swiss bank clients.
In 2015, banks represented 53.3% of the total value added of the Swiss financial sector, totalling CH?32 billion representing 5.12% of the country's GDP. UBS and Credit Suisse, the two largest banks in Switzerland, were ranked globally at #27 and #29 among banks, with assets of approximately US$941 billion and US$909 billion, respectively.
As of 11 October 2008, the banking industry in Switzerland has an average leverage ratio (assets/net worth) of 29 to 1, while the industry's short-term liabilities are equal to 260 percent of the Swiss GDP or 1,273 percent of the Swiss national debt.
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History
Swiss mercenaries brought home funds from their contracts that helped Swiss banks begin. Banking began in the eighteenth century by way of the riches of merchants. Wegelin & Co., established in 1741, was the oldest bank in Switzerland until it restructured into a new legal entity in 2013. Hy Hentsch & Co. bank and Lombard Odier, were both founded in 1796 in Geneva as private banks, and The Pictet Group was established in 1805 as a merchant bank. Hentsch & Cie was a founding member of the Swiss National bank during 1852.
Maps Banking in Switzerland
Swiss economy
Switzerland is a prosperous nation with a per capita gross domestic product higher than that of most Western European nations. In addition, the value of the Swiss franc (CHF) has been relatively stable compared with that of other currencies. In 2009, the financial sector comprised 11.6% of Switzerland's GDP and employed approximately 195,000 people (136,000 of whom work in the banking sector); this represents about 5.6% of the total Swiss workforce. Furthermore, Swiss banks employ an estimated 103,000 people abroad.
Swiss neutrality and national sovereignty, long recognized by foreign nations, have fostered a stable environment in which the banking sector was able to develop and thrive. Switzerland has maintained neutrality through both World Wars, is not a member of the European Union, and was not a member of the United Nations until 2002. Currently an estimated one-third of all worldwide funds held outside their country of origin (sometimes called "offshore" funds) are kept in Switzerland. In 2001, Swiss banks managed US$2.6 trillion. The following year they handled US$400 billion less which has been attributed to both a bear market and stricter regulations on Swiss banking. By 2007 this figure has risen to roughly US$2.7 trillion, a record.
The Bank of International Settlements, an organization that facilitates cooperation among the world's central banks, is headquartered in the city of Basel. Founded in 1930, the BIS chose to locate in Switzerland because of the country's neutrality, which was important to an organization founded by countries that had been on both sides of World War I. The Foreign Banks in Switzerland Association reported that from the start of 2012 to the end of May 2013, the number of foreign-owned private banks operating in Switzerland declined from 145 to 129 due to the roll-back of bank secrecy regulations. Over the preceding five years, the foreign banks' assets under management declined by 25% to CHF870.7 billion Swiss francs ($921 billion) due to their clients paying taxes or withdrawing their money. Foreign banks in Switzerland saw their pretax margin decline from 38 basis points in 2007 to 20 basis points in 2012.
Regulation
The Swiss Financial Market Supervisory Authority (FINMA) is a public law institution that supervises most banking-related activities as well as securities markets and investment funds. Regulatory authority is derived from the Swiss Financial Market Supervision Act (FINMASA) and Article 98 of the Swiss Federal Constitution. The office of the Swiss Banking Ombudsman, founded in 1993, is sponsored by the Swiss Banking Ombudsman Foundation, which was established by the Swiss Bankers Association. The ombudsman's services, which are offered free of charge, include mediation and assistance to persons searching for dormant assets. The ombudsman handles about 1,500 complaints raised against banks yearly.
Banking secrecy
The Swiss Banking Act of 1934 was enacted in the volatile climate of pre-World War II Europe, after Adolf Hitler and the Nazi Party came to power in Germany. Switzerland enacted the bank secrecy laws after Nazi authorities attempted to investigate and seize the assets held in Switzerland of Jews and "enemies of the state". These laws allowed Jews and others to escape from Nazi Germany without losing everything. Having moved assets to Switzerland, Swiss authorities were not allowed to answer German questions about who had what where. Even employees of German banks in Switzerland were not allowed to answer questions from their employer in Germany.
However, French MP Fabien Albertin denounced as a public scandal tax evasion by eminent French personalities, including politicians, judges, industrialists, church dignitaries and directors of newspapers, who were hiding their money in Switzerland. He called these men of "a particularly ticklish patriotism", who "probably are unaware that the money they deposit abroad is lent by Switzerland to Germany". The Peugeot brothers and François Coty, of the famous perfume family, were on his list. Since then, Swiss banks have acquired worldwide celebrity due to their numbered bank accounts, which critics such as ATTAC NGO alleged only help legalized tax evasion, money laundering and more generally the underground economy.
Under the Swiss principle of bank secrecy, privacy is statutorily enforced, with Swiss law strictly limiting any information shared with third parties, including tax authorities, foreign governments or even Swiss authorities, except when requested by a Swiss judge's subpoena. However banking is not strictly anonymous since under its banking law all Swiss bank accounts, including numbered bank accounts, are linked to an identified individual. This law only permits a bank to share information with others in cases of severe criminal acts, such as identifying a terrorist's bank account or tax fraud, but not simple non-reporting of taxable income (called tax evasion in Switzerland). In April 2013, French Minister Jérôme Cahuzac was forced to resign when the Geneva public prosecutor, acting quickly on a French request related to tax fraud, found evidence of undeclared Swiss accounts. Under pressure from the G20 and the OECD, the Swiss government announced in March 2009 that it will abolish the distinction between tax fraud and tax evasion in dealings with foreign clients. The distinction remains valid for domestic clients. Any bank employee violating a client's privacy could be punished quite severely by law. After signing 12 new double taxation treaties in accordance with the international standard set by the OECD, Switzerland was removed from the grey list of non-compliant tax jurisdictions.
In October 2013, the Swiss government stated that it intended to sign an international agreement sponsored by the OECD that, if ratified by Parliament, will align Swiss bank practices with those of other countries and in effect end the special secrecy that clients of Swiss banks had enjoyed in the past. After the revelations of whistleblower Bradley Birkenfeld in 2007, UBS was caught red-handed by the United States government offering tax evasion strategies, sending undercover bankers with encrypted computers to the United States. After it was caught, UBS paid a $780 million penalty and handed over hundreds of client files to American authorities. In 2010, the Swiss and the United States governments negotiated an agreement allowing Swiss bank UBS to transmit to the US authorities information concerning 4,450 American clients of UBS suspected of tax evasion.
In the aftermath of the UBS and Julius Baer banking cases, some wealthy clients who continue to use offshore accounts are turning to private banks in Singapore and Hong Kong. In addition to the local Singapore or Hong Kong banks, offices have been opened in those localities by a number of Swiss private banks. The move to Singapore and Hong Kong is an alternative to the banking secrecy that Swiss banks have come under attack for. Singapore has bank secrecy provisions comparable to those in Switzerland. Although Hong Kong does not have the same bank privacy laws, it offers flexibility in the creation of opaque companies that can serve as tax conduits. On 27 May 2015, Switzerland signed an agreement with the EU that will align Swiss bank practices with those of EU countries, and in effect will end the special secrecy that EU-resident clients of Swiss banks had enjoyed in the past. Under the agreement, both Switzerland and EU countries will automatically exchange information on the financial accounts of each other's residents from 2018.
Bank vaults and bunkers
A handful of larger Swiss banks operate undisclosed or otherwise secretive bank vaults, storage facilities or underground bunkers for gold bars, diamonds, cash, or other valuable physical assets.
Numbered bank accounts
Some bank accounts are afforded an extra degree of privacy. Information concerning such accounts, known as numbered accounts, is restricted to senior bank officers, rather than being accessible to all the employees of a bank. However, the information required to open such an account is no different from that of an ordinary account; completely anonymous accounts are not allowed by law. Should a criminal investigation take place, law enforcement has access to information related to a numbered account in the same way it has access to information about any other account.
Taxation evasion
Swiss law distinguishes between tax evasion (non-reporting of income) and tax fraud (active deception). International legal assistance used to be granted only with respect to tax fraud. Under pressure from the OECD and the G20, the Swiss government decided in March 2009 to abolish the distinction between tax evasion and tax fraud in dealings with foreign clients. Switzerland adheres to the international OECD standards with regard to administrative assistance in tax matters (decision to take over the OECD Model Tax Convention, in particular Article 26).
For Swiss taxpayers the distinction remains in place. Although not considered a crime and hence not prosecuted in a penal court, tax evasion is a serious offence under Swiss tax law and hefty financial penalties apply. In domestic prosecutions, banking secrecy may be lifted by court order in cases of tax fraud or particularly severe cases of tax evasion.
European Union
Pressure on Switzerland has been applied by several states and international organizations attempting to alter the Swiss privacy policy. The European Union, whose member countries geographically surround Switzerland, has complained about member states' nationals using Swiss banks to avoid taxation in their home countries. The EU has long sought a harmonized tax regime among its member states, although many Swiss banking officials (and, according to some polls, the public) are resisting any such changes.
However, Switzerland did not want to be seen as an obstacle to closer tax cooperation among EU-member states and decided to support the international efforts to adequately tax cross-border investment income. The retention tax agreed with the European Union (EU) in the taxation of savings income agreement is a suitable and efficient means of doing so. The EU is committed to eliminating existing loopholes in the system of taxation of savings income. Switzerland has expressed to the EU its willingness in principle to correspondingly adjust the taxation of savings income. Here it should be noted that Switzerland has adopted the OECD standard on administrative assistance and that the Federal Council rejects the automatic exchange of information. Since July 1, 2005, Switzerland has charged a withholding tax on all interest earned in the personal Swiss accounts of European Union residents.
Switzerland is not a member of the European Union but, since May 2018, is a part of the Schengen agreement.
United States
In January 2003, the United States Department of Treasury announced a new information-sharing agreement under the already extant U.S.-Swiss Income Tax Convention; the agreement was intended to facilitate more effective tax information exchange between the two countries. However, Swiss policy has continued to come under international criticism, and in March 2009 Switzerland agreed to renegotiate more effective tax cooperation with the United States and other countries. In 2013, the Swiss Parliament approved a law that allows Swiss banks to cooperate with United States tax authorities as specified in the FATCA.
Major banks
As of 2008, there are 327 authorized banks and securities dealers in Switzerland, ranging from the "Two Big Banks" down to small banks serving the needs of a single community or a few special clients. The largest and second largest Swiss banks are UBS and Credit Suisse, respectively. They account for over 50% of all deposits in Switzerland; each has extensive branch networks throughout the country and most international centers. Due to their size and complexity, UBS and Credit Suisse are subject to an extra degree of supervision from the Federal Banking Commission.
UBS
UBS Group AG came into existence in June 1998, when Union Bank of Switzerland, founded in 1862, and Swiss Bank Corporation, founded in 1872, merged. Headquartered in Zurich and Basel, it is Switzerland's largest bank. It maintains seven main offices around the world (four in the United States and one each in London, Tokyo, and Hong Kong) and branches on five continents.
Credit Suisse
Credit Suisse Group is the second-largest Swiss bank. Based in Zurich and founded in 1856, Credit Suisse offers private banking, investment banking and asset management services. It acquired the First Boston Corporation in 1988 and merged with the Winterthur insurance company in 1997; the latter was sold to AXA in 2006. The asset management services were sold to Aberdeen Asset Management during the 2008 financial crisis.
Other banks
Central Bank
The Swiss National Bank (SNB) serves as the country's central bank. Founded by the Federal Act on the Swiss National Bank (16 January 1906), it began conducting business on 20 June 1907. Its shares are publicly traded, and are held by the cantons, cantonal banks, and individual investors; the federal government does not hold any shares. Although a central bank often has regulatory authority over the country's banking system, the SNB does not; regulation is solely the role of the Federal Banking Commission.
Raiffeisen Banks "assumes the role of central bank" in providing treasury services, and is the third largest group consisting of 328 banks in 2011, 390 in 2012 with 1,155 branches. During February 2012, P. Vincenz was chief executive. During January, an announcement was made that the non-U.S. businesses of Wegelin & Co, the oldest Swiss bank, would be bought by the Raiffeisen group. The group has 3 million plus clients within Switzerland.
Private banks
The term private bank refers to a bank that offers private banking services and in its legal form is a partnership. The first private banks were created in St. Gallen in the mid-18th century and in Geneva in the late 18th century as partnerships, and some are still in the hands of the original families such as Hottinger and Mirabaud. In Switzerland, such private banks are called private bankers (a protected term) to distinguish them from the other private banks which are typically shared corporations. Historically in Switzerland a minimum of CHF1 million was required to open an account, however, over the last years many private banks have lowered their entry hurdles to CHF250,000 for private investors.
Cantonal banks
There are, as of 2006, 24 cantonal banks; these banks are state-guaranteed semi-governmental organizations controlled by one of Switzerland's 26 cantons that engage in all banking businesses. The largest cantonal bank, the Zurich Cantonal Bank, had a 2005 net income of CHF810 million.
Swiss banks and World War II
Several inquiries have been made into the conduct of Swiss banks during the Nazi Germany period (1933-1945), especially regarding funds deposited by or allegedly stolen from victims of the Holocaust. The campaign causing the highest outlays (US$1.25 billion in 1999) on the part of the Swiss banking industry as of 2009 was the World Jewish Congress lawsuit against Swiss banks launched by Edgar Bronfman, president of the World Jewish Congress, in concert with US Senator Alfonse d'Amato of New York.
The audit run by the Volcker Commission which resulted from this lawsuit cost CHF300 million and gave its final report in December 1999. It determined that the 1999 book value of all dormant accounts possibly belonging to victims of Nazi persecution that were unclaimed, closed by the Nazis, or closed by unknown persons was CHF95 million. Of this total, CHF24 million were "probably" related to victims of Nazi persecution. In addition the commission found "no proof of systematic destruction of records of victim accounts, organized discrimination against the accounts of victims of Nazi persecution, or concerted efforts to divert the funds of victims of Nazi persecution to improper purposes." It also "confirmed evidence of questionable and deceitful actions by some individual banks in the handling of accounts of victims".
In response to the lawsuit, the Swiss government commissioned an independent panel of international scholars known as the Bergier Commission to study the relationship between Switzerland and the Nazi regime. It reached similar conclusions about the banks' conduct in its final report, and found that trade with Nazi Germany did not significantly prolong the war.
See also
- List of Swiss financial market regulation
- List of banks in Switzerland
References
Bibliography
External links
- The Swiss banking law, as amended, from KPMG
- Offshore Banking, Directory resource, from OTH
- The Swiss Financial Center, from swissworld.org
- swissbanking.org
- Swiss Private Banking News
- "Échange automatique, secret bancaire : la réponse de l'ASB" (audio). A l'écoute : "Forum" (in French). Radio suisse romande. 25 January 2013. Retrieved 27 January 2013. Regarding World Economic Forum#Davos Man, January 2013, interview of Patrick Odier, President of the Swiss Bankers Association, Association suisse des banquiers (ABS).
Source of article : Wikipedia
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