Riga, Monday, March Dr. Bert Wolfs Academic Dean SBS Swiss Business School

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1 Riga, Monday, March Dr. Bert Wolfs Academic Dean SBS Swiss Business School

2 The Swiss Banking System Swiss National Bank The «Big Banks» Cantonal Banks Raiffeisen Group Foreign Banks Private Banks Basel III Agreement

3 The Swiss National Bank

4 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 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

5 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

6 Financial System Stability The SNB monitors and analyses all financial markets in 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

7 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

8 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

9 Specialized Bank Groups

10 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

11 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

12 Raiffeisen Group The Raiffeisen Groups is structured as a cooperative and is 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

13 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

14 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

15 The Basel III Framework

16 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

17 Basel iii Basel iii is the third set of banking rules agreed by central 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

18 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

19 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

20 Bank secrecy in Switzerland: background and current controversies with the EU

21 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

22 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

23 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

24 EU- Swiss relations affected by the tax issue Tax issues have marred bilateral relations between Switzerland and its 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

25 Conclusions

26 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

27 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