Switzerland Gets a Second Chance, After Failing Ten Years Ago

Is it nemesis that Switzerland, which nearly introduced bank separation legislation a few years ago, is now hit by a financial collapse, which could have been avoided. In Sept. 2009, Swatch founder Nicholas Hayek convinced the leader of the Swiss People’s Party, Christoph Blocher and the leader of the Social Democratic Party, Christian Levrat to jointly sponsor legislation to prevent future bank bailouts, through a separation between commercial and investment banks on the model of the 1933 U.S. Glass-Steagall Act. The initiative had broad support among the population, and in 2011 was approved by the National Council, the lower house of Parliament. However, strong lobbying by the financial industry and “cosmopolitan” elites got the Council of States, the upper House, to vote it down in 2013.

Had that legislation gone through, Switzerland’s banking system – and its economy – would be insulated today from the failure of one of its investment banks. This awareness is putting the bank separation issue on the table again.

Thomas Matter (SVP) and Green Party President Balthasar Glättli spoke out in favor of a bank separation system in an SRF television interview on March 17. According to bluewin.ch, “Glättli recalled an attempt in 2011 to introduce a banking separation system that would have to separate high-risk business areas. At that time, the Greens, SP and SVP worked together, but in the end were outvoted by the other parties in the Council of States.”

SVP’s Matter “agreed: ‘We must now stop mixing investment banking with the investment business.’ UBS must focus on its Swiss business instead of chasing risky adventures abroad, he said.”

And on March 18, when a solution for Credit Suisse was still in the making, Benjamin Fischer, a young member of the National Council for the SVP, tweeted: “A Black Day for the Swiss financial center. In the past, we missed the chance: instead of a stable bank-separation system, we have now not only a too-big-to-fail bank, but a too-big-to-rescue giant. Will we get the needed majority now?”

The Swiss business daily Neue Zürcher Zeitung noted March 19 that calls for Glass-Steagall are also coming from several Green Party members.

Marc Chesney, professor at the Zürich University and a known supporter of bank regulation,  called again for Glass-Steagall in an interview with the blog Infosperber. “Banks should be separated in the framework of a Trennbanken system, into investment banks and commercial banks, as it was the case for decades through the 1933 Glass-Steagall Act which guaranteed a certain economic stability.”

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