Swiss Banks

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INTRODUCTION

Switzerland has existed as a state in its present form since the adoption of the Swiss Federal Constitution in 1848. The precursors of modern Switzerland established a protective alliance at the end of the 13th century, forming a loose confederation of states which persisted for centuries.

Switzerland was not invaded during either of the world wars. This fact has allowed economy of Switzerland to reach modern high position. In 1920, Switzerland joined the League of Nations, which was based in Geneva, on the condition that it was exempt from any military requirements. Switzerland joined the Council of Europe in 1963. In 2002 Switzerland became a full member of the United Nations, leaving the Vatican as the last widely recognized state without full UN membership. Switzerland is a founding member of the EFTA, but is not a member of the European Economic Area. On 5 June 2005, Swiss voters agreed by a 55% majority to join the Schengen treaty, a result that was regarded by EU commentators as a sign of support by Switzerland, a country that is traditionally perceived as independent and reluctant to enter supranational bodies.

Switzerland has a stable, modern and one of the most capitalist economies in the world. It has the 2nd highest European rating after Ireland in the Index of Economic Freedom 2008, while also providing large coverage through public services. The nominal per capita GDP Gross Domestic Product is higher than those of the larger western European economies and Japan, ranking 6th behind Luxembourg, Norway, Qatar, Iceland and Ireland.

Besides, bank system of Switzerland one of the most developed all over the world.

THE BASIC PART

Banking in Switzerland is characterized by stability, privacy and protection of clients' assets and information. The country's tradition of bank secrecy, which dates to the Middle Ages, was first codified in a 1934 law Gumbel, Peter (2002-09-08). «Silence Is Golden». Time Magazine. Retrieved 2006-06-16.. All banks in Switzerland are regulated by Swiss Financial Market Supervisory Authority (FINMA), which derives its authority from a series of federal statutes.

As of 11 October 2008, the banking industry in Switzerland has an average leverage ratio (assets/networth) of 29 to 1, while the industry's short-term liabilities are equal to 260% of the Swiss GDP or 1,273% of the Swiss national debt.

Switzerland is a prosperous nation with a gross domestic product (GDP) higher than that of some larger western European nations. In addition, the value of the Swiss franc (CHF) has been relatively stable compared to that of other currencies. In 2003, the financial sector comprised an estimated 14% of Switzerland's GDP and employed approximately 180,000 people (110,000 of whom work in the banking sector); this represents about 5.6% of the total Swiss workforce.

Swiss neutrality and national sovereignty, long recognized by foreign nations, have fostered a stable environment in which the banking sector was able to develop and thrive. Switzerland has maintained neutrality through both World Wars, is not a member of the European Union, and was not even a member of the United Nations until 2002.

Currently an estimated one-third of all funds held outside the country of origin (sometimes called «offshore» funds) are kept in Switzerland. In 2001 Swiss banks managed US$ 2.6 trillion. The following year they handled US$400 billion less which has been attributed to both a bear market and stricter regulations on Swiss banking. By 2007 this figure has risen to roughly 6.7 trillion Swiss francs (US$5.7 trillion).

The Bank of International Settlements, an organization that facilitates cooperation among the world's central banks, is headquartered in the city of Basel. Founded in 1930, the BIS chose to locate in Switzerland because of the country's neutrality, which was important to an organization founded by countries that had been on both sides of World War I.

Foreign banks operating in Switzerland manage 870 billion Swiss francs worth of assets (as of May 2006).

The Swiss Financial Market Supervisory Authority (FINMA) is a public law institution that supervises most banking-related activities as well as securities markets and investment funds. Regulatory authority is derived from the Swiss Financial Market Supervision Act (FINMASA) and Article 98 of the Swiss Federal Constitution.

The office of the Swiss Banking Ombudsman, founded in 1993, is sponsored by the Swiss Banking Ombudsman Foundation, which was established by the Swiss Bankers Association. The ombudsman's services, which are offered free of charge, include mediation and assistance to persons searching for dormant assets. The ombudsman handles about 1,500 complaints raised against banks yearly.

BANKING LAW OF 1934

The Swiss Parliament passed the Banking Law of 1934, which codified the rules of secrecy and criminalizes violation of it. The secrecy provisions were not included in the first draft of the law, which mainly concerned administrative matters such as bank supervision. The provisions, found in Article 47(b), were added before passage of the bill due to Nazi authorities' attempts to investigate the assets of Jews and «enemies of the state» held in Switzerland.

ELECTRONIC PAYMENTS

Swiss banks, as well as the post office (which handles some financial transactions) use an electronic payments system known as Swiss Interbank Clearing (SIC). The system is supervised by the Swiss National Bank and is operated via a joint venture. SIC handled over 250 million transactions in 2005, with a turnover value of 41 trillion Swiss francs.

MAJOR BANKS

As of 2006, there are 408 authorized banks and securities dealers in Switzerland, ranging from the «Two Big Banks» down to small banks serving the needs of a single community or a few special clients.

UBS AG Union Bank of Switzerland. Aktiengesellschaft (AG) - in German Joint-stock company. and Credit Suisse are respectively the largest and second largest Swiss banks and account for over 50% of all deposits in Switzerland; each has extensive branch networks throughout the country and most international centres.

Due to their size and complexity, UBS and Credit Suisse are subject to an extra degree of supervision from the Federal Banking Commission.

UBS came into existence in June 1998, when Union Bank of Switzerland, founded in 1862, and Swiss Bank Corporation, founded in 1872, merged. Headquartered in Zьrich and Basel, it is Switzerland's largest bank. It maintains seven main offices around the world (four in the United States and one each in London, Tokyo, and Hong Kong) and branches on five continents.

As of 2008, UBS had a net loss of CHF 27.56 billion, a market capitalization of over CHF 43 billion, and 77,783 employees.

UBS has used the slogan «You & Us» in their marketing communication. The slogan aims to highlight the firm's client-based approach. Source: UBS branding.

Credit Suisse is the second-largest Swiss bank. Based in Zьrich, it was founded in 1856; its market capitalization (as of 2007) is $95.2 billion, and the company has about 40,000 employees. Credit Suisse Group offers private banking, investment banking and asset management services. It acquired The First Boston Corporation in 1988 and merged with the Winterthur insurance company in 1997; the latter was sold to AXA in 2006.

CENTRAL BANK

Swiss National Bank headquarters in Berne and Zurich. The Swiss National Bank (SNB) serves as the country's central bank. Founded by the Federal Act on the Swiss National Bank (16 January 1906), it began conducting business on 20 June 1907. Its shares are publicly traded, and are held by the cantons, cantonal banks, and individual investors; the federal government does not hold any shares. Although a central bank often has regulatory authority over the country's banking system, the SNB does not; regulation is solely the role of the Federal Banking Commission.

Besides the SNB is responsible for designing and implementing the Swiss monetary policy. The main objective of the Swiss National Bank is to maintain price stability, while facilitating strong economic growth. The SNB is the only Swiss institution issuing the official banknotes in the country. The bank is responsible for the Swiss foreign exchange and gold reserves. The SNB promotes stable financial system, and it works closely with other Swiss financial institutions to ensure smooth functioning of the nation payment and settlement system. Switzerland has a long-standing tradition in banking and excellent reputation for superior banking services.

MONETARY POLICY

The Swiss National Bank is entirely responsible for the national monetary policy. The main goal of SNB is to sustain stable prices avoiding both inflationary and deflationary price shocks. The bank target is to keep inflation of less then 2% annually in medium to long term. To achieve price stability the SNB controls the money supply in the economy, by influencing short-term loan interest rates. The SNB also takes in consideration the economic conditions in the country and worldwide when formulating it's monetary policy.

FINANCIAL SYSTEM STABILITY

The financial stability of the Swiss financial system is very important for the overall health of the economy, that's why one of the main goals of SNB is to ensure that the Swiss financial system functions smoothly and is not threatened. The SNB monitors and analyzes all Swiss financial markets in order to detect condition that threaten the integrity of the system. It also supervises the Swiss payment and settlement systems. The SNB may act as a lender of last resort to Swiss banks having liquidity/solvency problems.

SWISS BANKNOTES AND COINS

The Swiss National Bank is the sole issuer of banknotes in Switzerland. The bank provides the Swiss economy with banknotes and coins, and is responsible for exchanging of damaged banknotes and coins. The Swiss franc has long been considered to be a great store of value, due to the independence of Switzerland and the strong banking system the country has.

PRIVATE BANKS - PRIVATE BANKERS

The term private bank refers to a bank that offers private banking services and in its legal form is a partnership. The first private banks were created in St. Gallen in the mid 1700s and in Geneva in the late 1700s as partnerships, and some are still in the hands of the original families such as Hottinger and Mirabaud. In Switzerland, such private banks are called private bankers (a protected term) to distinguish them from the other private banks which are typically shared corporations.

CANTONAL BANKS

There are, as of 2006, 24 cantonal banks; these banks are state-guaranteed semi-governmental organizations controlled by one of Switzerland's 26 cantons that engage in all banking businesses. The largest cantonal bank, the Zьrich Cantonal Bank, had a 2005 net income of CHF 810 million.

BANKING PRIVACY

Swiss bank secrecy does not protect private banking information; the protections afforded under Swiss law are similar to confidentiality protections between doctors and patients or lawyers and their clients. The Swiss government views the right to privacy as a fundamental principle that should be protected by all democratic countries. While secrecy is protected, in practice all bank accounts are linked to an identified individual, and a prosecutor or judge may issue a «lifting order» in order to grant law enforcement access to information relevant to a criminal investigation.

Bank secrecy was codified by the 1934 Swiss Banking Act following a public scandal in France, when MP Fabien Alberty denounced tax evasion by eminent French personalities, including politicians, judges, industrialists, church dignitaries and directors of newspapers, who were hiding their money in Switzerland. He called these men of «a particularly ticklish patriotism», who «probably are unaware that the money they deposit abroad is lent by Switzerland to Germany». The Peugeot brothers and Franзois Coty, of the famous perfume family, were on his list. Since then, Swiss banks have acquired worldwide celebrity due to their numbered bank accounts, which critics such as ATTAC NGO alleged only help legalized tax evasion, money laundering and more generally the underground economy «Offshore banking, the secret threat to America». Hound Dogs. 2003..

Under the principle of bank secrecy, privacy is statutorily enforced, with Swiss law strictly limiting any information shared with third parties, including tax authorities, foreign governments or even Swiss authorities, except when requested by a Swiss judge's subpoena. However anonymous banking is not strictly true as a term as all Swiss bank accounts, including numbered bank accounts, are linked to an identified individual under Swiss banking law. This law only permits a bank to share information with others in cases of severe criminal acts, such as identifying a terrorist's bank account. Any bank employee violating a client's privacy is punished quite severely by law. Many offshore banks, located in tax havens such as in the Cayman Islands and Panama, also have strict privacy laws.

TAXATION

Swiss law distinguishes between tax evasion (non-reporting of income) and tax fraud (active deception). International legal assistance is only granted with respect to tax fraud. In domestic prosecutions, banking secrecy may be lifted by court order in cases of tax fraud or particularly severe cases of tax evasion.

EUROPEAN UNION

Pressure on Switzerland has been applied by several states and international organizations attempting to alter the Swiss privacy policy. The European Union, whose member countries geographically surround Switzerland, has complained about member states' nationals using Swiss banks to avoid taxation in their home countries. The EU has long sought a harmonized tax regime among its member states, although many Swiss banking officials (and, according to some polls, the public) are resisting any such changes.

Since July 1, 2005, Switzerland has charged a withholding tax on all interest earned in the personal Swiss accounts of European Union residents.

In 2001 and 2002, an amnesty was offered by the government of Italy in which taxes and penalties on repatriated funds were limited on funds repatriated from Switzerland; 30 to 35 billion euros worth of deposits were returned to Italy. In 2003, a similar amnesty was approved by the government of Germany.

Switzerland is not a member of the European Union, is a part of the Schengen agreement since December 2008.

UNITED STATES

Swiss bank accounts cannot be opened without the holder signing a legal document asserting that they have no outstanding financial obligations to the IRS. Despite this, Swiss banks have been criticized for improperly shielding individuals practicing tax evasion. Because only tax fraud (actively lying to authorities) is a crime in Switzerland, while tax evasion (passively neglecting to report income) is not, it is believed that many tax evaders have been able to take advantage of the Swiss privacy provisions.

In January 2003, the United States Department of Treasury announced a new information-sharing agreement under the already extant U.S.-Swiss Income Tax Convention; the agreement was intended to facilitate more effective tax information exchange between the two countries. However, Swiss policy has continued to come under international criticism, and in March 2009 Switzerland agreed to renegotiate more effective tax cooperation with the United States and other countries.

MONEY LAUNDERING

There are several measures in place to counter money laundering. The Money Laundering Act sets forth requirements of account holders' identification, and requires reporting of any suspicious transactions to the Money Laundering Reporting Office.

According to the CIA World Factbook, Switzerland is «a major international financial center vulnerable to the layering and integration stages of money laundering; despite significant legislation and reporting requirements, secrecy rules persist and nonresidents are permitted to conduct business through offshore entities and various intermediaries...» However, Switzerland's cooperation in transnational financial issues has been praised by several major U.S. officials. A Federal Bureau of Investigation anti-terrorism official noted that Switzerland was one of several countries to participate in joint task forces targeting financing of Al-Qaeda terrorist cells; a former Assistant Secretary of the Treasury praised Swiss cooperation and the country's assistance in the finding and freezing of terrorist and Iraqi assets.

NUMBERED BANK ACCOUNTS

Some bank accounts are afforded an extra degree of privacy. Information concerning such accounts, known as numbered accounts, is restricted to senior bank officers, rather than being accessible to all the employees of a bank. However, the information required to open such an account is no different from that of an ordinary account; completely anonymous accounts are not allowed by law. Should a criminal investigation take place, law enforcement has access to information related to a numbered account in the same way it has access to information about any other account.

SWISS BANKS AND WORLD WAR II

Several inquiries have been made into the conduct of Swiss banks during the Nazi Germany period (1933-1945), especially regarding funds deposited by or stolen from victims of the Holocaust. The campaign causing the highest outlays ($1.25 billion in 1999) on the part of the Swiss banking industry as of 2009 was the World Jewish Congress lawsuit against Swiss banks launched by Edgar Bronfman, president of the World Jewish Congress, in concert with US Senator Alfonse d'Amato of New York.

In October 1996, as this campaign was underway, Swiss ambassador to the United States Carlo Jagmetti admitted that some banks prevented Holocaust survivors from accessing their funds, although he disputed the amounts claimed in lawsuits by survivors. Union Bank of Switzerland security guard Christoph Meili became a prominent whistleblower when he removed Holocaust-era records from the bank and alleged that records of accounts of Holocaust victims were being destroyed (see main article on Meili).

In 1998, an international panel of historians released a study that claimed a significant amount of gold had been stolen from Holocaust victims, as well as the treasuries of conquered countries, and deposited in the Swiss National Bank. The panel found that, despite evidence of theft and wrongful acquisition of the gold, the SNB continued to accept the deposits. In 2000, Judge Edward R. Korman of the United States District Court for the Eastern District of New York approved a US$1.25 billion settlement between several Swiss banks and the plaintiffs, a group of Jewish organizations.

An estimated 50,000 accounts[citation needed] in Switzerland were opened by victims during the Nazi era; some banks refused to make payments to victims' families because of the lack of death certificates. However, an article published on October 13, 2001 in The Times of London reported that the tribunal entrusted with tracing Holocaust era accounts found that only 200 of the 5,570 abandoned foreign accounts in question, containing about $12 million, could be traced back to Holocaust victims; most of the abandoned accounts were owned by wealthy gentiles, and half the accounts contained less than 1,000 francs.

INTERNATIONAL COMPETITION

With recent changes in the Swiss bank secrecy regime, other states, such as Singapore, have attracted depositors seeking privacy and protection. Having taken steps to make its banks more attractive, Singapore strengthened penalties for violators of bank secrecy (and now imposes steeper fines and longer jail sentences for offenders), and modified its laws on trusts and inheritance. Singapore is also now the location of Credit Suisse's international banking headquarters.

CONCLUSION

Banking in Switzerland is characterized by variety within the Swiss banking system. Apart from numerous other qualities, the Swiss banking system is noted for its variety. The Swiss banking system is based on the concept of universal banking, whereby all banks can offer all banking services. Nevertheless, it has seen the development of different bank groups that have come to specialize in certain areas.

The Swiss banking system is based on the model of universal banking. This means that all banks can provide all banking services, such as: 1) credit/lending business; 2) asset management and investment advice; 3) payment transactions; 4) deposit business (savings accounts, etc.); 5) securities business (stock exchange transactions); 6) underwriting business (issuing of bonds); 7) financial analysis.

This is directly opposite of banking systems in English-speaking countries and in Japan which separate commercial banking from investment banking. Legislation is, in fact, currently underway in the United States to liberalize the system.

The advantages of universal banking include the ability to spread risk over a greater number of banking businesses and customers from all sectors of the economy. Banking in Switzerland is extremely diverse, even though it is based on the principle of universal banking. Several bank groups are now fully or partially specialized. The two «big» banks - UBS AG and the Credit Suisse Group - together account for over 50% of the balance sheet total of all banks in Switzerland. Besides there are such kinds of bank in Swiss banking: Cantonal banks; Regional banks and savings banks; Private banks; Foreign banks and others.

THE USED LITERATURE LIST

Church, Clive H. (2004) The Politics and Government of Switzerland. Palgrave Macmillan.

Fahrni, Dieter. (2003) An Outline History of Switzerland. From the Origins to the Present Day. 8th enlarged edition. Pro Helvetia, Zьrich.

Gumbel, Peter. (08.09.2002). «Silence Is Golden». Time Magazine. Retrieved 16.06.2006.

http://en.wikipedia.org

«Offshore banking, the secret threat to America». Hound Dogs. 2003.

Switzerland. (2009). In Encyclopжdia Britannica. Retrieved 07.12.2009, from Encyclopжdia Britannica Online: www.britannica.com/EBchecked/topic/577225/Switzerland

Trukhachev, Vadim. (22.09.2009). «Switzerland To Open Bank Secrets to Russia», from pravda.ru: http://english.pravda.ru/world/europe/109442-1

Union Bank of Switzerland. (2009). In Encyclopжdia Britannica. Retrieved December 07, 2009, from Encyclopжdia Britannica Online: www.britannica.com/EBchecked/topic/614718/Union-Bank-of-Switzerland

www.centralbanksguide.com/swiss+national+bank

www.cia.gov/library/publications/the-world-factbook/geos/sz.html#People

www.swissbanking.org/en/home/links.htm