By Robert U.Vogler
The latter was founded in 1912 as the “Association of Representatives of the Swiss Banking Profession” before being renamed the “Swiss Bankers Association” (SBA) in 1919 in keeping with its role and the common parlance of the time. Since 2001, the designation “SwissBanking” has also been in use, presenting the institution with a modern and international face, and a tailor-made name for modern communications media such as the Internet. But it was a long road that led to here.
The inaugural meeting in Basel brought together 159 financial institutions with 316 members. The year was 1912, and the Belle Epoque was drawing to a close. This was an era characterised by peace and an unbelievable belief in the possible, the most visible expression of which is most certainly the Eiffel Tower in Paris, built in 1889. The purpose of the association was, among other things, to “discuss all matters affecting the banking industry, (…) to discuss the legislative proposals of the Swiss Confederation and the cantons which either directly or indirectly affect the interests of the banking sector, to assess such proposals and to formulate any proposed amendments.” It also aimed to “safeguard the honour and reputation of the Swiss banking industry.” At the time, the association was only open to physical persons, such as chairmen, deputy chairmen, supervisory board delegates and directors, as well as owners and partners of private banks. This was extended to include deputy directors and authorised representatives in 1937 and individual banks in 1947. On the occasion of its 50th anniversary in 1962, the organisation boasted a total of 322 institutional members with 1,087 individual members, while in 2012 – its centenary year – there are about 350 institutions with some 17,700 members.
In 1914, the SBA voted the first two conventions, which the members were fundamentally bound to uphold. These formed the basis of many decisions concerning a wide range of topics and were only abandoned in the 1990s following the introduction of the legislation on competition. After the First World War, one of its major areas of activity was the protection of Swiss assets in the European countries which had previously been at war. A similar situation was observed after the Second World War, when the nationalisation of Swiss foreign capital, in particular in the communist-governed states of Eastern Europe, presented the Bankers Association with an undertaking which continued for many years. The reparation and compensation of ownership rights were key concerns at that time.
An important undertaking for the Bankers Association in the 1930s was the introduction of the “federal Law on Banks and Savings Banks” on 1 March 1935. From 1926 to 1930, Swiss banks enjoyed a short-lived boom phase. During the Roaring Twenties, several banks, and the Schweizerische Volksbank (SVB) in particular, contracted extensive loan commitments in Germany. In the thirties, however, they were forced to take considerable losses due to the economic and banking crisis which was also beginning to emerge in Germany in 1931. Swiss banks found themselves in a difficult situation because the only way to extricate themselves from this business was to accept heavy financial losses. Large segments of the population began to fear that they would lose their savings deposits and there were loud calls to introduce state supervision.
One of the main catalysts for the new supervision of banks was the SVB, which had to be rescued twice, once by means of a massive state intervention totalling 100 million Swiss francs (one quarter of the Confederation’s entire budget at that time). The banks held a fundamentally liberal view and had spent decades successfully fighting against banking supervision. Even after 1933, the SBA claimed that “the prescribed state control of banks would burden the federal government with an unwanted moral responsibility while it would in no way be capable of realistically offering the public a better guarantee than before for the safety of money invested in banks.”
In the SBA business report of 1934, there was even talk of “bank police legislation.” However, together with the banks represented in the expert commission, the Bankers Association accepted the need for legislation. In a sideshow to this main event, the previously unwritten practise of banking secrecy – in actual fact, bank customer confidentiality as it protects the privacy of the customers and not the bank – was codified. Innumerable cases of foreign bank espionage in Swiss banks meant that this loophole in the 1934 law concerning banks and savings banks had to be closed. Banking secrecy was nevertheless of mere secondary importance in the political discussions concerning the banking legislation. From a modern standpoint, it is somewhat surprising to note that there was no political objection.
In 1932, the general public, the judiciary, and the Bankers Association alike were absorbed by the Basler Handelsbank’s (BHB) so-called Paris affair. Two representatives of the bank were arrested during a meeting with French nationals because they were helping them to evade French coupon tax. In politically unstable France, this tax fraud led to a national scandal, because BHB’s customers included a number of celebrities. The dispute with the French state and its legal authorities even outlived the Vichy regime in France, continuing until immediately after the Second World War and thus becoming a long-running undertaking for the SBA.
In contrast, the disputes with the American tax authorities tended to take place behind the scenes, keeping the SBA occupied “for years”, as it testified in its business report of 1934: “In autumn 1934, we were informed that the American Treasury had requested that the banks make good on any tax returns not filed from 1929 to 1933, adding that precise information must be provided concerning any transactions relating to shares, stocks and goods. (…) The Treasury (…) requested that the banks provide information concerning securities transactions carried out not only on their own behalf but also on behalf of their customers.”
And: “The Swiss Political department (the modern-day Swiss federal department of foreign Affairs) declared its readiness to support the Swiss banks with all the resources at its disposal if the American tax authorities were to persist with their demand or should resort to sanctions.” In reaction to the interventions of the different governments, the Treasury addressed the issue of tax exoneration for persons living abroad. In a 1939 circular, the SBA was able to sound the all-clear because the American Treasury had relinquished its claim to the sums withheld through a type of flat rate withholding tax and the Swiss banks could even claim back taxes that had already been paid.
Swiss banks changed very little during the 20 years following the Second World War as they were still digesting the war years and their immediate aftermath. A new beginning came with the growing economic boom of the 1960s, which led to aggressive expansion, in particular of the big banks, both in Switzerland and abroad. The Bankers Association already actively supported these institutions as they took their first steps in the North American markets, just as it continues to do today in other important and emerging markets. In addition to the successful commercial business conducted with firms and international companies, private banking and asset management services (business with wealthy Swiss and foreign nationals) offered by large banks began to assume an increasingly important role alongside the long and well-established private banks. From that time onward, it was not always easy for the Bankers Association as a trade organisation, to reconcile all interests and ensure agreement on all matters between the large banks on the one hand, and the regional, cantonal and private banks on the other.
For the financial centre, the Washington Accord, signed by Switzerland and the USA in 1946, marked an important step in repairing the damaged relations with the victorious Allies. The Bankers Association was not directly represented in the negotiations, but it nevertheless played an important role on behalf of the banks, generally suspected by the American treasury of having collaborated with Nazi Germany, in implementing the different partial agreements. These primarily concerned Swiss assets of German origin in Switzerland and the USA, for which the US wanted to abolish banking confidentiality, however without success.
In 1977, the “Chiasso affair”, involving the Schweizerische Kreditanstalt (SKA), shocked both Switzerland and the world of finance to the core. Losses totalling 2.2 billion Swiss francs were uncovered at the Chiasso branch of SKA. The resulting inestimable damage to the reputation of both the bank and the financial centre led to the creation of the Agreement on due diligence by the Bankers Association in 1977. While it has since been amended, this code of conduct for self-regulation still applies today with the main aim of “protecting the reputation of the Swiss banking industry both at home and abroad” as well as making “irreproachable business management” an obligation.
For many years, Swiss third-world organisations had set their sights on the banks, attacking the billions of francs of flight capital from developing countries which were suspected to be held in Swiss banks under the protection of banking secrecy. In 1978, after the Chiasso affair had been made public, the political left launched an initiative against the abuse of banking secrecy and the power of the banks. This sought to make banking transparency with regard to the tax authorities and administrative assistance for foreign governments obligatory. It also called for the disclosure of customer and trust assets managed by the banks, their supervisory board mandates and the proxy voting power exercised.
Under the professional guidance of the Bankers Association, the initiative was successfully defeated through the implementation, among other things, of the image campaign “Swiss banks – a part of our economy” which continued to serve as a model for future campaigns for many years. In the referendum of 20 May 1984, the initiative was rejected with a landslide majority of 73%.
Between 1970 and the mid-1990s, all Swiss banks experienced an unprecedented upswing, both in their national and international operations. The Swiss financial centre grew to an extraordinary size, primarily through wealth management. With a market share of 27 %, it is still the world leader in cross-border business. From 1995 onward the banks – and in particular the major banks – were forced to accept an initial setback, as the questions concerning the whereabouts of the long-dormant assets of the Second World War’s Holocaust victims became increasingly pressing. The banks’ top executive committees misjudged the explosiveness of the issue, believing that their predecessors had dealt with the matter in 1962 to the complete satisfaction of all those concerned. The Bankers Association took a leading role and endeavoured to repel the waves of outrage voiced by lawyers and victims’ organisations in the USA. Under the Association’s guidance, a “Memorandum of understanding” was signed in 1996 with the American organisations involved, providing for the creation of an independent fact-finding commission charged with clarifying the whereabouts of these assets. In the end, the political pressure led to a settlement whereby all three major banks were to pay approximately 1.8 billion Swiss francs, forcing them to undertake a costly process of distributing this money to the victims and their descendants. It was at this time that two of the major banks, the Schweizerische Bankgesellschaft and the Schweizerische Bankverein, announced their planned merger scheduled for 1998. The settlement was an additional requirement for this merger.
The reputational damage was not limited to the banks alone, but extended to the financial centre and the country as a whole. It is hardly surprising then that the SBA supported the two historic fact-finding commissions, the results of which subsequently proved that – contrary to the wave of recriminations from the USA – Swiss banks had not in any way systematically enriched themselves at the expense of the victims of the Holocaust.
The introduction of a suitable stock exchange act was hugely important to a modern Swiss financial centre. The Bankers Association was very active in assisting and driving the political process over a period lasting seven years and was largely responsible for its implementation. One major concern was that the stock markets should continue to be organised according to private law and that self-regulatory elements should render state intervention unnecessary in questions of detail. The law came into effect in 1997.
The same was true of the money laundering legislation, which took effect in 1998 and which also represented a major undertaking for the SBA. Similar efforts were twice more required of the representatives of the banks with regard to the introduction of the insider trading legislation into the criminal code in 1988 and the revision thereof in 2008, heralding stricter legal provisions. Another revision concerning the punishment of misconduct on the capital market is currently under consideration, as is an amendment to international regulations concerning insider trading.
From the year 2000 until the beginning of the subprime crisis in the USA, public opinion once again began to swing back in favour of Swiss banks. From 2007 to 2009, the Swiss financial centre experienced a particularly turbulent period, for the most part due to the problems surrounding UBS. As in the case of the tax dispute with the USA in 2009, the situation required massive intervention both by the Swiss National Bank and politically. In comparison to other financial centres, however, Switzerland coped very well with the financial crisis. The Bankers Association is not only a representative of the industry; it is also a progressive thinker in many areas of the banking and financial sectors. In 2007, it took on a lead role in seriously addressing future scenarios. Earlier than other stakeholders in the financial centre, the Bankers Association recognised that managing taxed assets for customers abroad was the way of the future.
The Swiss Bankers Association has always been concerned with certain important matters which are not directly related to the banking sector, but which lay the foundations for it or form the public view of the financial institutions.
For decades, the Bankers Association has conducted regular surveys regarding the quality and popularity of the banks. The results always paint the same picture: satisfaction and opinion regarding the banking system in general fluctuate, albeit at a high level, but are strongly influenced by current events involving banks, the financial centre and politics. When it is a question of their own bank, however, the one with which they have a business relationship, the respondents unfailingly give them a very high approval rating and demonstrate record satisfaction levels.
Swiss banks continue to provide the majority of their employees with a basic commercial training focusing on banking. There is a wide range of professions and occupational fields both in terms of banking apprenticeships, and at universities and technical colleges. Banks currently employ people in literally dozens of different professions and new additions are made frequently. Bearing witness to this trend towards a more academic approach in the sector was the founding of the Swiss finance Institute (SFI), at the initiative of the SBA, which opened its doors on 1 January 2006. The SFI is a foundation which is supported and financed by banks, leading universities and the state. Its main aim is to drive the competitive promotion of research and training while offering attractive executive education courses.
In 1993, the Swiss Banking Ombudsman was established. The Ombudsman serves as the point of contact for customers who are in a dispute with their bank but who do not wish to take legal action. The Ombudsman mediates between the parties but has no arbitral jurisdiction. It can recommend a solution to the parties concerned but cannot prescribe it. The institution is supported by a foundation which was established by the Swiss Bankers Association. The Board of the foundation consists of independent individuals.
Looking back over the past 100 years, we can see that history seems indeed to repeat itself, and this is also true for the Bankers Association. At regular intervals, challenges of a similar nature had to be overcome. For the trade organisation, the main concern was and remains the financial centre, which is of the utmost importance to the Swiss national economy. It generates approximately 11% of gross domestic product, accounts for 12 to 15% of tax revenue and provides about 200,000 high skilled jobs. Continued strong industry representation is essential in order to ensure successful contribution and commitment to the financial centre in the future. Patrick Odier, Chairman of the Swiss Bankers Association, sent out this reassuring message on Bankers Day 2011: “The Swiss Bankers Association will continue to make every effort to implement concrete and effective solutions to the different challenges facing us in our financial centre.”
[all figures as of 2012]
This text is an extract taken from the „100 years of Swiss Banking. 100 people. 100 thank you”, published for the 100th birthday of the SBA. The author Robert U. Vogler holds a doctorate in history. He was a spokesperson for the Schweizerische Bankgesellschaft (SBG/UBS) from 1988 to 1998, the Head of Historical Research at UBS AG and a Senior Political Analyst in Public Policy at UBS AG until early 2009. He currently works as an independent historian.
