Swiss Finance: Capital Markets, Banking, and the Swiss Value Chain

CHAPTER 2

The Swiss Banking System

INTRODUCTION

This chapter focuses on Switzerland's banking industry. It begins with a brief historical overview of the nation's banks and then explains changes in this sector's productivity, growth, and development. Because change is never without cause, the endogenous and exogenous forces responsible for Switzerland's dramatic transformation during the past two decades are highlighted, as well as the forces that are likely to become important in the future.

Switzerland's banks are heavily focused on private banking and asset management but not at the expense of providing highly efficient financial services to the economy. Credit is readily available to productive sectors of the economy, but it is typically granted on the basis of collateral (e.g., mortgages approved with the property serving as security), thereby mitigating credit risk. Looking to the future needs of Switzerland, the nation's relatively high labor costs virtually compel it to compete on the technological frontiers, which means success will depend on the financial system's willingness and ability to supply adequate high-risk, long-term capital to support these ventures.

Swiss banks have long been credited with financing the nation's industrialization and infrastructure (railways) during the nineteenth century. Few would disagree that these investments were (and still are) vital to Switzerland's growth and development; so it is with this in mind that one might pause to consider ...