Time for bankers (Press release)

Mr. President,

Ladies and Gentlemen,

The Sonntagszeitung recently ran the front page headline: "Merz has no time for bankers". I would therefore like to thank you for the kind invitation to speak here today. You are giving me the chance to prove the opposite. As Finance Minister, I naturally have time for bankers. Even when some bankers and their actions keep me rather busy.

The last Bankers' Day took place exactly one year ago. Since then, the events in your industry flew thick and fast; in many respects, this can be seen as a change of era; a change that has its origins in the global financial and economic crisis.

Fortunately, here in Switzerland we cannot really speak of a true banking crisis. Nevertheless, the Swiss financial centre has not come away unscathed. The financial centre has revealed its weaknesses and vulnerabilities, a lack of transparency, insufficient risk management, false incentives, and too little resistance to acute stress situations. Second, the crisis has massively increased international pressure on the Swiss financial centre, and particularly on banking secrecy. In order to master the resulting paradigm shift, first and foremost we need you, Ladies and Gentlemen - namely bankers who recognise the sign of the times. What is also needed is a State that puts in place the appropriate framework conditions without succumbing to over-regulation.

Our common goal is to guide the Swiss financial centre successfully through the current change of era. Drawing on lessons learned from the crisis, we want to make the financial centre more stable, sustainable, transparent, and efficient. That way, our financial centre will continue to play at the top of this highly competitive international field.

In my following remarks, I will first consider this change of era in regard to the banking industry and then in regard to the State. First, some thoughts on your industry. The reason today's Bankers' Day is taking place in Geneva is not only to spare the outgoing and incoming presidents the journey from Geneva for their changeover. Rather, the organisers had one of the cradles of the Swiss banking centre in mind during these turbulent times. The roots of Swiss banking lie namely in Zwinglian-bourgeois Zurich or in Calvinist-Huguenot Geneva. Originally, they were mainly private bankers who invested their wealth in their own businesses. They were therefore forced to evaluate their business risks carefully. In case of doubt, they refused a business transaction. Dealing with money was a discreet activity. Respect when the customer generated wealth and contempt when he failed were close together. Henry Dunant's pecuniary tragedy is a dramatic example of this.

Private bankers cultivated a very personal style, generally characterised by outward noblesse and precision in their art of living, but also characterised by certain business principles and values. These had to do with solidness and reliability. Banking relationships were based on criteria of creditworthiness. They relied on empathy with the customer and foresight. The bankers knew their customers. Knowing your customer was one of the first principles of Swiss banking.

These values are remarkable in a time of very weak State regulation - they arose almost only as a consequence of the Enlightenment. Even today, they stand as the paradigm of self-regulation.

If I skip over the following 200 years and look at the present time, I note that the rapid cycles and high complexity of business, especially under the aspects of open markets and a flood of information, represent an entirely different foundation for business than the first Geneva and Zurich dynasties experienced. In this context, proven values have unfortunately been lost among some bankers, values that constitute the basis for the success of our banking centre. This loss is one of the main causes of the current crisis.

As bankers, it is now your responsibility to contribute to recovery with innovative and at the same time tradition-conscious ideas and to develop mechanisms for crisis prevention. A special challenge is to regain the trust of bank customers. The banks must be able to credibly show their customers that they and their needs are at the centre of the banks' efforts, not the hunt for short-term profit. The public and policymakers also want to be assured of this. More homework is waiting in the changed international environment: The goal must be to convert the high importance accorded to privacy in Swiss banking into business models that are still sustainable even within a new framework.

To master the challenges of our time, your industry needs leaders and role models who return your institutions back to the proven values of our banking centre. Simply put: It is a time for bankers.

But the burden does not rest on your shoulders alone. The State is also called upon to guide the Swiss banking centre through this change of eras and into a successful future. Last autumn, this means that we had to seize urgent measures. Now, we must create the framework conditions to ensure that the Swiss banking centre emerges stronger from this crisis.

For this purpose, I have fought and I continue to fight to ensure that all State action is guided by liberal principles. This means especially that the State may only intervene where private self-responsibility fails. For months now, we have been experiencing a worldwide firework display of regulatory and restructuring proposals. In light of all these regulatory projects, I cannot overemphasise the ideal of a strong but lean State. The State is not a banker, but rather only a legislator and regulator.

In the following remarks, I will briefly illuminate some of the most important topics that concern me as Minister of Finance, together with the National Bank and FINMA.

You are very well acquainted with the urgent State measures taken last autumn. In addition to measures to stabilise the economy, specific interventions in the financial sector were necessary. The Federal Council, the National Bank, and what is now FINMA put together a package of measures for this purpose. These included a targeted action for the benefit of UBS, and we also adopted urgent measures to strengthen depositor protection and increase capital requirements. With these measures, the State took on extensive and in part new tasks - even where it would have preferred not to.

I am proud that the federal government successfully able to disengage from UBS a month ago. We have thus re-established the normal regulative state of affairs and, in passing, generated a surplus of CHF 1.2 billion. Almost the same day, we announced that we had reached a favourable solution with the USA in regard to UBS. This solution frees UBS and indirectly also our national economy from a sword of Damocles. At the same time, it respects our legal order and our sovereignty. On the other hand, we are expanding another urgent measure, namely depositor protection. The Federal Council has just circulated a draft Bank Deposit Guarantee Act for consultation. First, we propose transposing the existing time-limited system into regular law. Second, we envisage a two-stage guarantee system: The first stage would be constituted by a fund financed by the banks, part of which would be built up immediately. Should the fund be exhausted, the second stage would kick in, namely a federal guarantee or federal advance. This federal engagement would be compensated by the banks through annual premiums.

A further reform to stabilise the system concerns higher risk-weighted capital requirements and the introduction of a leverage ratio for major banks. These measures would create buffers to cushion threatening blows to bank balance sheets.

One issue that has been of greatest concern to the public is compensation policy. The hearing period for the circular drafted by FINMA recently expired. This circular is intended to enter into force and ensure that variable compensation ("bonuses") is paid in the long term and sustainably in accordance with economic gain, taking account of the risks assumed. With this circular, FINMA is acting as a global pioneer. Switzerland is thus not following the calls for strict compensation limits that are being heard in many quarters and that are often populist. We are rather attacking the root of the problem: false incentives that reward risky volume spikes instead of sustainable added value. Beyond this, I appeal to the self-responsibility of your industry and to Swiss virtues such as moderation and humility.

Even with all of our Swiss values, our financial centre is still intricately linked internationally. The financial markets in general are extremely networked globally - as the crisis has again demonstrated. Accordingly, the trend toward international regulation and supervision is growing. Switzerland is working at the forefront of these endeavours. In this way, we can ensure the international political weight to defend the interests of our financial centre. For instance, we have two seats on the newly created Financial Stability Board (FSB). The FSB is primarily concerned with promoting the stability of the financial market. Moreover, Switzerland is a reliable participant in bodies such as the Financial Action Task Force (FATF) to combat money laundering, the International Monetary Fund (IMF), and the OECD. In all these organisations, we are influentially and prominently represented by high-ranking experts.

Speaking of the OECD: Another aspect of the current crisis is the rising pressure on banking secrecy on the part of the OECD, the G20, and certain of its member States. In light of the financial emergency in many States, it is not astonishing that they must maximise and lay claim to their tax bases at all costs. For this purpose, they are targeting many internationally successful financial centres and banking secrecy in particular.

Switzerland has not been immune to this pressure. Foreign countermeasures would have done damage to both the financial centre and the industrial location. The Federal Council - at the same time as most other affected financial centres - therefore decided to expand Swiss administrative assistance policy in accordance with the OECD standard. It should be noted that this only applies to taxpayers living abroad. Banking secrecy within Switzerland remains unaffected.

Working at full speed, we have already negotiated more than a dozen double taxation agreements in accordance with the OECD standard and signed many of these already. We expect the OECD and the G20 to take us off their ominous grey list by the end of the year. As part of the Global Forum of the OECD, we are also actively working toward ensuring that all financial centres must be measured by the same standards. We also aim to prevent the automatic exchange of information in administrative assistance and to optimise the agreement on the taxation of savings income with the EU. That is why last December, the Federal Council signalled its willingness towards the EU to enter into discussions with regard to adapting the agreement on the taxation of savings income.

In addition, this spring, the Federal Council commissioned my department to examine in detail the question of a tax at source. This idea was also picked up by the Banker's Association as part of its `Rubik' project. I assure you that work on this question will be pursued keenly by my department.

We are also thinking more fundamentally about the future of Switzerland's financial centre. The Federal Council is demonstrating strategic leadership in that respect and will present revised strategic guidelines for the financial centre before the end of the year. Many players are involved in this strategy, not least the State in terms of fiscal policy measures. Our goal is to adjust the financial centre as smoothly as possible to the new framework conditions of the international financial markets. Our goal will ultimately be to achieve internationally compatible, lean, but nevertheless efficient regulation.

It is close to my heart to proceed along this path in close cooperation with you, the representatives of the financial industry. That is why, I established an institutionalised dialogue between the authorities and industry at the beginning of 2008. We have intensified this dialogue and the Swiss Bankers' Association has been involved in all the important dossiers. This dialogue continues at a sustained rhythm just like the work within the administration. In other words: The State has time for bankers.

To sum up, Ladies and Gentlemen: The Swiss banking centre is currently experiencing a major upheaval. It is now a time for bankers who embark on the new era while remembering their proven values. And it is also a time for a State that creates framework conditions for this transition while honouring its liberal principles.

In this regard, I look forward to fruitful collaboration with you, the representatives of the Swiss banking centre and in particular with the Swiss Bankers Association. I would like to thank Mr. Pierre Mirabaud for his untiring engagement on behalf of the Swiss banking centre. And I wish Mr. Patrick Odier every success for the future.

I am convinced together we will be able to overcome these difficult times. But now, Ladies and Gentlemen, it is time for refreshments.