Switzerland and its banks

Dear reader,

For some time now, a struggle has been playing out behind the scenes in Switzerland: after the spectacular collapse of Credit Suisse in spring 2023, the country is keen to introduce higher capital requirements for its banks.

With the demise of Credit Suisse, the banking nation par excellence is now home to one huge bank and a host of smaller ones. There is little consensus on whether or not this poses a systemic risk for the country. But what does seem clear is that the banking sector would hardly be able to withstand a second collapse of such magnitude.

This is one of the reasons for the new capital requirement plans. UBS, however, regularly threatens to leave Switzerland if the rules end up being “extreme” – a threat which most observers reckon is part of a negotiating strategy, and not to be taken too seriously.

But what if the bank actually were to pack its bags? This is almost impossible to foresee. But a look at the statistics can help put things in context: in Switzerland, the financial sector accounts for 9% of GDP – roughly on par with the UK (8.6%) or the US (7.8%), but well behind Singapore (13.5%) or Luxembourg (23.5%).

Interestingly, banking’s importance for total Swiss economic output has fallen over the years. Switzerland is now one of the 20 biggest economies in the world, and its economic structure is diverse.

Nevertheless, it is still perceived as a banking nation, as foreign media are often more than happy to report. This has a lot to do with Switzerland’s image abroad, which is changing only slowly (it probably also has something to do with the banking law, which partially criminalises critical journalism about the financial sector).

This makes it all the more important to paint a picture which is as precise as possible. A good start, for example, would be with the very definition of the financial sector: did you know it also includes the insurance branch? Today, the sector contributes almost as much to Switzerland’s economy as banks.

However, insurance rarely threatens to relocate, and seldom makes headlines generally. But who knows: maybe that will change one day.

Do you see Switzerland as the quintessential banking nation? As ever, you can write to me directly at [e-mail]

Best regards,

Giannis Mavris

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