Many people claim that bank secrecy no longer exists, what are your thoughts on the subject? I definitely do not agree with that. Bank secrecy remains unchanged in Switzerland; banks are still legally obligated to ensure client confidentiality, as it’s written into Swiss law. There are some exceptions to the rule in cases of judicial issues or within the context of agreements with foreign nations under very specific conditions.
But hasn’t the State itself violated bank secrecy, with the UBS tax affair in the USA for example? That was an exceptional case. The 4,500 names turned over to the United States generally involve people who were misinformed and credited bank secrecy with powers it doesn’t have. Bank secrecy is not and has never been absolute; it has always been limited by dual taxation agreements with other nations.
So Swiss banks continue to be trustworthy? How do you envision the future of Swiss banking in the medium term? I’m very optimistic about the future of Swiss banking. Large Swiss banks that needed it most were recapitalised and are doing very well in comparison to the international situation. The Swiss banking market has remained extremely reliable and was even strengthened by the Euro Zone crisis. This crisis has allowed Switzerland to recover its traditional comparable advantages that had been lost due to the fact that its competitors’ services have improved over the past few years. None the less, the image of Swiss banks has been seriously damaged.
How can Switzerland defend and continue to prone its banking excellence under the circumstances? How can foreign depositors and investors renew their confidence in Swiss banks? The image of Swiss banks has undeniably been tainted by the UBS scandal. Furthermore, the Swiss live by a longstanding Protestant tradition of questioning themselves and constantly worry about not being good enough. In this case, as in many others, the Swiss are their own worst enemy! In reality, the Swiss banking market offers three determining advantages – security, confidentiality and competence. Those are the values that Switzerland’s clients, be they with private banks or not, appreciate and seek out. If we don’t lose sight of these fundamental aspects, there’s no reason to lose confidence in our banks.
What’s your opinion on the pressure applied by foreign tax agencies and the methods they use? With the financial crisis, the pressure on Swiss banks has greatly increased – the European nations lost colossal sums of money, so they grab at money where they can find it and don’t hesitate to use methods of economic warfare to obtain it anymore. Switzerland has a proximity based fiscal system which is both flexible and close to reaching what people basically want. As a result, this tax model also attracts foreign nationals. I believe that some of the methods used by foreign tax services are extremely questionable, but I remain confident – Switzerland is the third largest buyer of European goods, ahead of China and Japan! We’ll find a way to get along with our European partners sooner or later.
Let’s consider the HSBC bank data theft matter; some foreign tax agencies have no qualms about paying bank employees to get their hands on the names of potential tax cheaters…
How can banks protect clients’ anonymity from that kind of unscrupulous employee? It’s really a human resources problem. At private banks, the smaller ones, it’s generally less of an issue as they know their employees better than is possible in larger financial institutions. Private banks have solid work teams that have created strong bonds and flight risk is thus greatly reduced. There are methods to further minimise the risk – with better human resources management, but also by establishing strict company ethics and regularly reminding employees about them as well as securing heightened computer protection. The practice of calling in outside consultants should also be reduced to a strict minimum. Finally, the director’s personal responsibility and commitment is at stake.
In other words, private banks can help restore the Swiss banking market’s former glory? Although private banks may be discreet, they actually have an excellent image. They have their own management methods; associates are continually held responsible and everything is planned for the long term. As opposed to investment banking, one could say that private bankers are more labourers than hunters. Therefore, private banks have an intrinsically different attitude than large banks as their interests are not as closely linked to economic conditions. Private banks are structured on a smaller scale and that encourages a sense of responsibility in their employees. Larger banking structures could learn a lesson or two from these defining characteristics of private banks.
How is the private banking sector coping with the current economic difficulties in general? What new trends are on the horizon, particularly in the areas of financial tools, alternative investments and special funds? Private banks weren’t splashed across the front pages; they actually got the best end of the stick and were savvy in attracting new clients. Many of these banks are venerably old institutions and they all have the experience needed to ride out this crisis as they have done with other crises in the past. For example, the Lombard Odier Bank has calculated that over the last two centuries it has weathered some 40-odd crises! The fact that the institution is still around, and can even be said to be doing very well, makes me feel confident in the future. Furthermore, asset management activity is still in high demand and is expanding rapidly. Private banks traditionally don’t tend to follow trends. Their characteristic long term perspective makes them sceptical of complex financial products which are sometimes overvalued as no one really understands what they represent.
Are you in favour of implementing stricter banking sector and financial market regulations? In fact, banking and financial markets have always been strictly regulated, particularly in the past 15 years or so. There hasn’t been any “de-regularisation” over the past few years, today’s problems are more a result of rules that either didn’t work or were bypassed across the board. For example, banks were allowed to have up to 40 times more assets than equity; it was deemed possible to determine the percentage of equity based on the risks involved. However, many AAA-class products were actually over-valued, or even “toxic”, and we know what that led to…Banks on the whole didn’t do anything wrong, they simply applied international norms that had been relaxed.
What are your views on the “too big to fail” principle? In Switzerland, large banks act as infrastructure, they’re almost a public service. The UBS scandal put the entire Swiss banking system in jeopardy. The problem is this new phenomenon of collective punishment that has arisen in reaction to the crisis; the danger is that bankers will all be held accountable for the transgressions of just a few financial players. A potential solution could come from a new law that’s being drafted, calling for companies that have an influence on the system to have a certain amount of equity in the future. Either way, Swiss banks can’t go on taking risks with the State’s guarantees. Salaries paid to directors in both large banks and other companies have also become a political issue and will inevitably be a subject for debate.
Should Switzerland be concerned about competition from countries such as Liechtenstein, Luxembourg, Austria or Singapore? I don’t think that there’s much to worry about in terms of competition from Austria and Liechtenstein. As an EU member state, Luxembourg has always known how to use European Union regulations to its own advantage and is a serious competitor for the Swiss banking market as a result. Singapore has begun to work in the same manner as we do with a certain measure of success and could likewise be a dangerous adversary. But Swiss banks have a considerable advantage over their competitors in the Swiss political system itself, which is based on direct democracy. Switzerland functions on extreme transparency and decisions aren’t made overnight, which means that there’s no risk of one man making an irreversible decision as is the case in many other countries. This transparency of the political process is unique in the world and represents an advantage that’s very difficult to match.
Some economists predict a new financial crisis that will be even bigger than the current one, what are your thoughts on that? A new crisis is a possibility that cannot be ignored. The present crisis is affecting nations that are drowning in debt. The best thing we can do is keep a close eye on current events.
