Plan aims to repair damaged Swiss banking sector

The federal government on Wednesday announced a multi-pronged plan to repair the reputation and performance of Switzerland’s battered financial services industry while safeguarding its banking secrecy provisions.

The government is creating a state secretariat to focus on international finance matters, while establishing an interdepartmental task force to implement a strategy aimed at shoring up the industry.

“We really have to improve competitiveness,” Finance Minister Hans-Rudolf Merz told a press conference in Bern.

Merz said the government plans to reduce or abolish certain taxes on financial institutions while lobbying through the World Trade Organization and the OECD for better access to markets, particularly in the European Union.

“We must get more entries into other markets,” he said.

A recent EU directive, for example, places asset managers from non-member countries at a disadvantage, while in Germany, Swiss banks can only provide cross-border financial services through a subsidiary or branch in that country or through a German intermediary.

The federal strategy also includes planned streamlining of regulations to ensure Swiss financial companies remain competitive, while considering ways to better deal with the risks entailed by the country’s two biggest banks, UBS and Credit Suisse.

The banks last year posted record losses stemming from the financial crisis that threatened to bankrupt at least one of them, UBS, which needed a government bailout to survive, while posing serious problems for the national economy.

UBS also suffered from bad publicity this year over a tax evasion scandal in the US, and Switzerland generally came under pressure from the G-20 countries for its banking secrecy laws.

But rather than retreating from the secrecy provisions, the cabinet came out swinging in defence of banker-client confidentiality.

“The declared goal of the federal (cabinet) is to ensure protection of client privacy,” a statement issued by government authorities said.

The cabinet wants to “reconcile the interests of states wanting to enforce their tax laws with the long-term interests of Switzerland.”

The country has taken heat from authorities in the US and in Europe, who have lumped Switzerland in with a group of tax havens where the wealthy can shelter their income.

However, the federal government said it “continues to reject the automatic exchange of information” with other countries about Swiss bank accounts held by foreigners.

The cabinet said it is willing, though, “to expand existing cross-border cooperation within the framework of bilateral negotiations.”

But it said the precondition for this would be for this to be linked to better market access and “the regularization of existing accounts with respect to the tax authorities of the state in question, with no repatriation obligation.”

The government said it was willing to consider introducing a withholding tax and restarting talks –suspended in 2003 - on a services agreement with the European Union.

It would also look at other measures to encourage honesty about taxes from foreign bank clients, such as self-declaration statements.

The government issued a 67-page report entitled, “Strategic directions for Switzerland’s financial market policy,” which was drawn up by the federal finance department in collaboration with the Swiss National Bank and FINMA, the Financial Market Supervisory Authority (FINMA).

The government has established a committee to look at ways to prevent the two big banks from taking unacceptable risks that could put the Swiss economy at risk.

While the economy can benefit from having such large financial institutions, the market share of UBS and Credit Suisse (with more than 30 percent of domestic loans and deposits) means that if they incur major losses it can have a calamitous impact on the country as a whole.

The central bank has already raised concerns about the “too big to fail” issue, while stiffening capital and liquidity requirements for the big two.

Among other measures, the government is making permanent depositor protection adopted as temporary legislation in December 2008.

The law, which increased minimum protected savings from 30,000 francs to 100,000 francs, was set to run out at the end of 2010.

Merz acknowledged Switzerland’s financial centre’s back was to the wall. But he said the country’s asset management, reinsurance and retail banking businesses stand to do well.