Switzerland: Glass-Steagall Would Put an End to “Too Big to Fail”

The Swiss Parliament’s battle against “Too Big to Fail” has entered a new phase. On June 14, the joint Investigative Committee on the bailout of Credit Suisse was established, with a broad mandate to investigate both whether the state of emergency invoked by the government was justified, and the circumstances leading to the bank’s distress, as well as to explore changes in the current framework of bank regulations.

The Committee is made up of members of the Lower House (National Council) and the Upper House (Council of States), and chaired by a member of the latter from the Mitte party (Christian Democratic), Isabelle Chassot, with the vice-president being Green Party parliamentarian Franziska Ryser. Ms. Ryser has already filed a draft bill for the implementation of a bank separation system (Glass-Steagall), which has not yet been debated (cf. SAS 22/23).

A source familiar with the matter told EIR that there is a good chance that the Committee will do a good job, as members of all parties are included, three of which (the Green Party, the Socialist Party and the People’s Party) are in favor of a bank separation reform. Much will now depend on whether the Investigative Committee is convinced that, contrary to what the government claims, Glass-Steagall legislation is the only way to eliminate the TBTF blackmail.

In an article for the website Inside Paradeplatz, Professor emeritus of the Zürich University Hans Geiger called on the Committee to seriously consider the historical example of the Glass-Steagall Act and urged Council of States members not to repeat the error of 2010, when the lower house was in favor of such legislation but the upper house rejected it.

For Professor Geiger, the future regulatory framework for systemically important banks should not improve the current regime, but replace it. “The systemically important bank must be separated from other businesses, completely, not in a coherent group or under a holding umbrella. The systemically important bank must be subject to very strict restrictions. This is called a banking separation system.

“This is not a new idea. In the wake of the stock market crash of 1929 and the ensuing Great Depression, the United States introduced a banking separation system known as the Glass-Steagall Act, which from 1933 to 1999 required the strict separation of retail lending from investment banking. The ‘Glass-Steagall Act’ led to a stable banking system in the U.S.A. for decades.”

Prof. Geiger further points to the risk that the banking lobby, or the Finance Department, backed up by expert opinions, will dominate the debate. Therefore, it is important for “political parties, umbrella business organizations, municipalities, cities, the mountain regions and interested parties” to become involved in the consultation process.