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If you were to look at the stone headquarters of Switzerland’s biggest banks UBS and Credit Suisse here in Zurich’s center, or if you look at any of the hundreds of smaller Swiss banks, you probably wouldn’t get a sense of the changes going on inside. Banks are reacting to foreign tax investigations, ever stricter rules on investments following the financial crisis. But where will banks ultimately end up when all these changes are made?
PETER KUNZ: “Quite honestly no one really knows, and it’s not easy to say Swiss banks will go in a certain direction. I am pretty sure even Swiss banks do not really know it.”
Peter Kunz is professor of business law at the University of Bern.
KUNZ: “Right now most of them try just to survive being it in Switzerland as such, or being it abroad. So we are in a time of change right now, but I would not bet anything on a certain direction.”
OSWALD GRÜBEL: “There is a big change, which has happened to Swiss banking, is transparency.”
Oswald Grübel is the former CEO of Credit Suisse, and UBS. He says the push toward more transparency is putting ever more pressure on Swiss banks.
GRÜBEL: “We have created a transparency which I think the broad public cannot handle, actually. And we are frightened about the transparency. Because we hear, ‘Oh, we didn’t think [about] that!’ And transparency replaces secrecy and trust. And I think if you were to ask every banking client, ‘Do you actually want total transparency from your bank?’ he would say ‘no.’ Because total transparency means, then as well, one day, the client would be totally transparent.”
Grübel admits Switzerland has an reputation problem. Despite efforts to brand itself a place for clean money as the government has endorsed since 2009, the phrase “Swiss bank” still seems to conjure thoughts of illegality for many people outside the country.
GRÜBEL: “I think it’s unfair, but that is some kind of legend building. You can watch old Hollywood films of 30 or 40 years, where the secret Swiss bank account was mentioned. So you get that kind of image. In a way it probably also has helped in times of stress to convince people that to bring their money to Switzerland, to a safe place, is a good thing. Which has proven to be correct.”
To combat the bad reputation, Switzerland has pushed for tax agreements with Germany, Austria and the UK, meant to offer a withholding tax on foreign clients of Swiss banks in exchange for maintaining client anonymity.
PASCAL SAINT-AMANS: “I think Switzerland is not a tax haven, depending on what you call a tax haven, of course.”
Pascal Saint-Amans is the director for tax at the Organization for Economic Cooperation and Development, whose standards Switzerland adopted for data exchange.
SAINT-AMANS: “Switzerland has been, for decades, a strict bank secrecy state. Meaning that when you had a bank account in Switzerland, except for criminal activities, the secrecy was protected. It’s no longer the case, it’s been changed a few years ago. The Swiss government has passed tax treaties, as well as domestic changes in the legislation, to allow for exchange of information. So Switzerland was a strict bank secrecy state, it’s no longer the case.”
JOHN CHRISTENSEN: “They haven’t yet deserved to lose the public impression around the world that Swiss banking secrecy remains a problem. And that public impression remains broadly correct. We’ve still got a long way to go.”
John Christensen is with the London-based activist group Tax Justice Network. He balks at some claims made by analysts and pundits to point a finger away from Switzerland to other countries, saying they don’t have their house in order when it comes to tax havens.
CHRISTENSEN: “But rather than say ‘look, we aren’t going to change and clean up our act, until they clean up their act.’ What I’d welcome is for Switzerland, the Swiss government to now say, ‘OK, we will commit ourselves to pushing for best practice globally.’ I’d feel much happier about Swiss commitment to international cooperation when Switzerland signs up to automatic information exchange on the European Union’s model.”
Switzerland is moving quicker and stronger in at least one realm of banking reform and that is the amount of capital, or easily liquid assets, a bank must hold. The so-called “Swiss Finish” to international banking rules will require banks to hold capital worth an unprecedented 19 percent of risk-weighted assets. This is requiring bankers to take less risk. But for Bern law professor Peter Kunz, more can be done.
KUNZ: “We have to be quite honest, most of the time whenever there is a scandal going on, a Swiss bank is involved. In particular the big banks. So UBS and Credit Suisse are, in my view, a problem for the reputation of Swiss banking. And that’s very unfortunate because they are quite important to Switzerland. So I think, first of all we must avoid any scandals. I think we also have to increase the compliance activities in Switzerland. The compliance activities are pretty good, already, but probably the standards must be heightened. Of course this will bring the costs skyrocketing high, but be that as it may, we must avoid any scandals.”
Kunz says Switzerland is often underestimated, or mislabeled in its vigilance in legal bank business because of its problems with other countries over taxes, but it was never a dirty money haven. It has long had strict rules on money laundering. But these recent deals to allow bank data exchanges have amounted to breaking covenants with customers, says former UBS CEO Grübel. Banking secrecy is no longer a guarantee, and he says only time will show if wealthy clients still trust Swiss banks to be their safe haven in the future.