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The Regulation of Foreign Banks in Switzerland ( )

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1 The Regulation of Foreign Banks in Switzerland (1956-1972)
Thibaud Giddey The Regulation of Foreign Banks in Switzerland ( ) Foreign Financial Institutions and National Financial Systems 2013 EABH Annual Conference Warsaw, 8 June 2013

2 Structure of the presentation
The growth and specificities of the Swiss financial centre ( ) Foreign banks in Switzerland: development, origin, motivations Reactions of Swiss authorities: dissuasive strategy followed by regulations. Conclusions

3 Source: Mazbouri/Guex/Lopez, Projet Place Financière Suisse.

4 Source: Mazbouri/Guex/Lopez, « Finanzplatz Schweiz », in Halbeisen/Müller/Veyrassat, Wirtschaftsgeschichte der Schweiz im 20. Jahrhundert, Zürich, 2012, p. 477

5 Source: Meyer, Max, Die ausländischen Banken in der Schweiz, 1975, pp

6 Source: Pecchioli, Rinaldo (éd
Source: Pecchioli, Rinaldo (éd.), Les pouvoirs publics face à l’internationalisation des activités bancaires, Paris : OCDE, 1983, p. 72

7 National origin of foreign banks in Switzerland (as share of total assets of foreign banks)
Source: 1958: Author’s calculations based on (E 6520(A), 1983/50, vol. 1, dossier « Ausl. Banken  »). 1972: Meyer 1975, 24.

8 Attractiveness of Switzerland
Liberal banking regulation: Low barriers to entry: minimal requirements. No separation of commercial and investment banking activities. Banking secrecy Political stability, neutrality Geographic position, multilingualism Stability and strength of the Swiss franc Lenient tax system Reputation as a safe haven spared from war Prestige and competition reasons Several internationally-active companies, especially in the commodity trade business

9 3. Reactions of Swiss authorities
3 phases: : appearance of the ‘threat’ of foreign banks, dissuasive tactics : financial scandal, increase of the number of foreign banks, soviet-bank : parliamentary intervention, federal decree ‘establishing the system of license for foreign-controlled banks’

10 3. Reactions of Swiss authorities (1956-1965)
Arguments against new foreign banks Swiss Bankers Association: Threat to the reputation of the Swiss financial centre Increased competition in the wealth management market Presence of foreign banks could amplify international restrictions on the entire banking industry. Domino effect Overbanked market, lack of qualified staff, wage inflation Swiss National Bank: Inflationary effects due to the inflows of foreign capital through the foreign banks

11 3. Reactions of Swiss authorities (1956-1965)
Measures to take against foreign banks Regulatory change could lead to unwanted reforms : avoid legal modification by adopting a dissuasive strategy (indirect obstacles): Refuse the opening of interbank payment accounts by the central bank Restrictive policy in the granting or extending of residence permits Foot-dragging tactics in the processing of requests

12 3. Reactions of Swiss authorities (1965-1967)
April-July1965 : “Muñoz Scandal” March 1966 : opening of the Wozchod Handelsbank AG Revision process of the banking law initiated in 1966 Swiss Bankers Association makes the question of foreign banks its hobby-horse in case of a revision of the banking law.

13 The system of licenses for foreign-controlled banks (21 march 1969)
4 conditions to meet in order to obtain a license: Reciprocity should be granted to Swiss banks Company name should not suggest any Swiss origin Inopportune advertisement with the Swiss head office should be avoided Respect Swiss monetary policy

14 Effects of the new regulation
In the short-term, no reduction of the number of requests ( ). Reciprocity = only condition that could actually justify the refusal of a request. Creation of the Association of Foreign Banks in Switzerland in 1972.

15 Conclusions The passing of the 1969 decree met the needs of Swiss banking interests in four ways: Attempt to quickly limit the expansion of new competitors without necessarily questioning the very liberal regulatory framework The question of the limitation of foreign banks played an important role in the delay in the revision process of the banking law.

16 Conclusions Effort to silence international criticism directed against the Swiss banking haven, by imposing slightly higher entry conditions for foreign banks Reciprocity clause used simultaneously as a protectionist measure to prevent the establishment of new competitors and as a diplomatic tool for the expansion of Swiss banks. In fact, the expansion of the international network of Swiss banks took place mainly in the 1970s.

17 Thank you for your attention !

18

19 Site selection of Switzerland according to a survey of foreign banks in 1972
Source: Meyer 1975, p. 14.

20 Présence internationale des grandes banques suisses en 1969

21 Types d’activités des banques étrangères en Suisse
Exécution de transactions financières et commerciales avec le pays d’origine Opérations de financement international. CH = plaque tournante Opérations sur l’or et les devises Opérations d’émissions internationales Gestion de fortune et gestion de fonds de placement Pas de banques de détail, ni d’opérations sur le marché intérieur De manière générale, les banques étrangères pratiquent en Suisse les activités bancaires qui ne sont pas autorisées dans leur pays d’origine ou qui y sont moins rentables (p. ex. gestion de fortune, financement du commerce international)

22 Politique bancaire en Suisse
Banque nationale suisse Commission fédérale des banques Association suisse des banquiers Administration fédérale des finances

23 Foreign banks : 4 types of establishment
Representative office (german: Vertretung, french: représentation) Branch (german: Filialen, french: succursale) Subsidiary company (german: Zweigniederlassung, french: filliale) Foreign-controlled banks (german: ausländisch beherrschte Banken, french: banques de droit suisse en mains étrangères).


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