The Swiss banking Industry first established Itself as a center for cross border trading In goods, with the companies “Handset & Ice” (founded in 1796), “Dresses” (1815), “Wiggling” (1741), and “Ran & Fodder” (1750) as the first private banks, implicated in the textiles industry or as subsidiaries. Swiss banks therefore began to grow off the ground by way of the riches or merchants who concentrated their activities in “trading in goods and articles of all types, collecting annuities and undertaking speculation in commodities”I.
Although trading was profitable, the bank soon realized that for It to gain more from Its activities, it would have to change its core business from trading to advising wealthy merchants and families in how to manage their assets. The financial sector is the leading sector of all Swiss activities, and accounts for a wide range of business models. Banks in Switzerland can be classified by the assets managed and are divided into four categories. Global banks manage assets in excess of CHEF 1,000 billion and employ more than 10,000 staff In their wealth management divisions.
Large banks typically have over 1. 000 staff and manage CHEF 50 to 1. 000 billion. Medium-sized institutions manage CHEF 10 to 50 billion, and usually employ more than 100 staff in Switzerland. Small banks manage CHEF 1 to 10 billion. Institutions with less than CHEF 1 billion are not included. Furthermore, the fully understand the importance and strong hold of the banking industry in Switzerland, one may see in the high number of banks within Switzerland itself and its numerous subsidiaries a pattern of dominance In this sphere.
As seen in the document “Banks and branches in Switzerland”, domestic banks, which include cantonal banks, Refines banks and regional banks, are of key importance for the Swiss economy as they lend to the domestic real economy. At the end of the year 2011, Switzerland had 312 banks, of which 148 were foreign. Assets of 52. 5%, with a total asset of CHEF 1,467 billion. This shows the importance of the largest banks in Switzerland activities, as further proved by the total value added of 59. 4% to the Swiss financial sector, amounting to CHEF 35. 0 billion which represents 6. 2% of the country’s GAP.
Indeed, the two largest banks in Switzerland, UBS and Credit Issue were ranked at number 19 and number 25 respectively on the global scale, with assets of about US $ 1. 75 trillion and US $ 1. 090 trillion respectively”. The added value of the whole financial sector increases from CHEF 59,4 billions to nearly CHEF 90 billions, which is equivalent to approximately one fifth of the Swiss GAP. In general, Switzerland operates on the model of universal banking meaning that is provides every type of banking services like payment transactions, financial analysis, or asset management and investment advice.
Swiss banks are mostly known for their strong abilities in wealth management. Wealth management, that is “Assets under Management” or otherwise known as MUM can be defined as the market value of assets that an investment company manages on behalf of investors. As shown in the table below, at the end of the year of 2011, assets under management totaled around CHEF 5,300 billion ranking Swiss banks amongst the world leaders in wealth management. Two Swiss banks can indeed be found in the top ten in the PAM Insight report of the world’s biggest wealth managers. These banks include UBS GAG, and Credit Issue Group GAG iii.
To understand the prominent spot Swiss banks hold on an international level, one must look further into the history of the industry. Indeed, Switzerland banking industry benefited from many advantages that differentiated it from other countries. It first had a “status as an important refuge for Protestant refugees from Catholic neighbors in the 17th century”iv which led to an increase in expatriates (including bank specialists), and with the booming of the textile industry all over Europe, men with financial expertise where progressively needed to handle all financial affairs to offset trading risks.
Another advantage from which Switzerland banking profited made for a stable environment for the banking industry to flourish, easy convertibility f the Swiss franc into other currencies even during unhinged global turmoil, and a reliable political system. Indeed, its neutrality during both World Wars and the “Banking Law of 1934” enabled Swiss banking to attract more assets. In short, the “Banking Law of 1934” made it a criminal offence to reveal a client’s identity, creating the world’s biggest tax haven.
Banking secrecy first became one of the bases of Swiss banking during the Second World War, when it allowed Jews and others to avoid losing everything they owned, as German authorities had no right to investigate client counts. “Bank secrecy therefore was, and remains a protection of the individual against the power of the state”v. The most prominent article, that is article 47 from the “Banking Law of 1934”, also known as the “Federal Act on Banks and Savings Banks”, clarifies the Swiss banker’s professional duty of client confidentiality.
Indeed, it is clarified that “anyone acting in his/her capacity as member of a banking body, as a bank employee, agent or liquidator, or as a member of a body or an employee belonging to an accredited auditing institution, is not permitted to divulge information entrusted to him/her or of which he/she has been apprised because of his/her position”vi. The notion of “bank-client confidentiality” is therefore further explained. It is nevertheless important to note its limits. A banker’s duty to protect a client’s account holdings is not unconditional, as it does not apply to criminals.
A bank is in its obligation to divulge depositors’ identity under certain circumstances such as in civil proceedings, debt recovery and bankruptcy proceedings, criminal proceedings, and international administrative and Judicial assistance proceedings. Swiss bank have long been accused of not divulging client names that reportedly escaped taxes. However, one must take into account the unique Swiss tax system based on the principle of self-declaration by the taxpayer. There is no link between the bank and the tax authorities.
Indeed, it is the client’s responsibility to ask for the appropriate documents to the bank and to pass them to the authorities. Before the year of 2009 Swiss law distinguished tax evasion from tax fraud. Tax evasion, that is non-reporting income and tax fraud, that is active deception, would mean different acts on Swiss banks part. There would only be granted cooperation with authorities with respect to tax fraud. This created the biggest tax haven, as Switzerland held around $ 2. 1 trillion, representing 27% of offshore wealth, according to the Boston Consulting Groupie.
In terms of Swiss law, a serious criminal offence would not constitute tax evasion, for instance. Tax evasion is only seen as a misdemeanors as the possibility of a genuine error is too great. Regulations are however seeing the light across all business areas, as it will be explained later. The future rules will allow Switzerland to emphasize the stability and solidity of its banks, UT the added costs must not be a disadvantage in international competition. Switzerland banking presents many opportunities in the future.
Today, the Swiss banking market produces revenues of CHEF 58. 6 billion: 25. 4 of this comes from private banking, 17. 6 from retail banking, 8. 0 from corporate clients, 6. 0 in asset management, and 1. 6 in investment banking. By 2015, revenue should have risen by around CHEF 5. 3 billion, an annual increase of 1. 8%. According to the graph shown above, additional opportunities have been identified, like an ultra high net worth individual (ENNUI) offensive, where more revenues from n improved service offering and a dedicated coverage model.
Emerging markets is also a valuable opportunity, as Swiss’ position as a leading center for cross-border asset management it can boost asset inflows from emerging markets if it adopts a clear strategy. In the retail client business, also an important factor, a channel mix, I. E. Reinforcing models will make it possible to address client needs that have not yet been identified yet. In corporate customer business, Swiss banks could get more involved in trade finance, or even Off full range of services to large Swiss and international companies for their foreign business that would give Swiss banks an opportunity to capture additional revenue.
The few opportunities previously listed could radically increase revenues, if addressed by the right institutions with the right tools to succeed, I. E. Ability, resources, and market access. They would offer considerable potential for the Swiss banking center. However, they would also require both “political and regulatory improvement and better cooperation between authorities and the institutions being supervised in the interests of the banking center”ix.
