Global financial crisis still casts shadows

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The financial crisis is not yet under control and efforts to solve it leave “a lot to be desired”, the secretary-general of the Swiss Private Bankers Association says.

This content was published on September 9, 2010 - 10:28
Robert Brookes,

Michel Dérobert tells that while the main financial players were quick off the mark when it came to issues relating to tax, there has been little progress on what he considers more important issues at stake.

He cites the issue of “too big to fail” and questions relating to the comparative competitiveness of the international financial centres.

In response to the “too big to fail” issue, he says Switzerland reacted quickly. The government set up a group of experts to report on the problem.

However, the results of its investigation have been delayed and the promised proposals for tougher bank regulation are now expected at the end of this month. You’ve said that international coordination still leaves a lot to be desired when it comes to the financial crisis and the banks. How do you see the current situation?

Michel Dérobert: There were big announcements in 2009 about all the things that were going to be done but we are still very much at the level of announcements.

As far as the question regarding “too big to fail” is concerned, Switzerland was very quick in its approach but others seem to be more reluctant… I wouldn’t say the announcements have been forgotten but the reality seems to be more complicated than the great leaders of this world expected. It’s been said in Switzerland there needs to be radical reform on the “too big to fail” issue in the case of such banks as UBS or Credit Suisse. How do you see this problem?

M.D.: It’s a really big dilemma. On the one hand it is not acceptable that commercial enterprises can carry out their business with the certainty that they cannot fail. It is in the essence of capitalism that failure must be possible.

On the other hand, given the importance of these two banks, if you start tinkering with the regulations in your corner, if Switzerland does it without thinking too much about the competitiveness of its two major banks, these banks might be put at a disadvantage, and the country and the real economy could suffer from that... It’s tricky. Should the state allow a possible collapse of UBS or Credit Suisse?

M.D.: Yes, but not in the present situation because they are now too big to fail. There must be solutions. One must find ideas to prevent a failure, to make it so-to-say impossible, because it is not acceptable philosophically or morally that commercial enterprises have to be saved by the state…

The whole issue that the experts are looking at right now is how to make two things that are impossible work together. How to solve this squaring of the circles is difficult but I think it has to be done. Switzerland was more or less railroaded by the G20 group of countries to accept OECD standards on administrative assistance in tax matters. In March 2009 it abolished the distinction between tax fraud and tax evasion. Has this spelled for you the end of Swiss banking secrecy?

M.D.: This railroading applied not only to Switzerland but also to Belgium, Austria, Singapore and a number of jurisdictions that belong to the British crown. It was a major decision made by the G20. Switzerland accepted it. We in Switzerland don’t think we need this interference of the state in people’s fiscal affairs and we’ll now have to have a sort of dichotomy, with the Swiss citizens on the one side being protected by Swiss banking secrecy in tax matters and Switzerland accepting on the other side to give more cooperation to foreign countries.

I don’t think this is the end of Swiss banking secrecy, as the basic principles of customer confidentiality will remain untouched. But this is the end of part of it. Other parts were taken away a long time ago, for example in the case of insider dealing. How has that affected the private bankers?

M.D.: This was a big question but it turned out OK. The fact is that you never know why your clients are with you, whether it’s do with the country’s laws, or whether your performance is so wonderful, or because they like you or because they think the country is a safe harbour in a dangerous world. Up to now we haven’t seen any catastrophe; on the contrary I think the Swiss private banks have got more fresh money. Perhaps the crisis in surrounding countries played a certain role. Does banking secrecy tend to encourage tax dishonesty?

M.D.: I don’t think so. A way to gauge tax dishonesty is to look at the underground economy. It is always difficult to study this because it is not very well documented by definition. But there’s a professor at Linz University in Austria who’s made a specialisation of looking into this very significant economic activity. Study after study, year after year, he’s been finding out that the two countries in Europe which have the best tax honesty or the least significant underground economy are Switzerland and Austria, in that order, which are two countries with banking secrecy in tax matters…

What makes citizens pay their taxes or have fewer underground activities is that they trust their own taxman and they feel that the services they get in return are reasonable for the price they pay. Banking secrecy, if it is accompanied adequately by other measures to make sure that people don’t cheat, is absolutely no problem for tax honesty. Germany, France, Italy and the United States took advantage of stolen bank data to, as you put it, unsettle their nationals with bank accounts in Switzerland. Is it legitimate to use illegal methods in the fight against tax evasion?

M.D.: No, it isn’t. I completely disagree that the means can justify the end. I think that in a state of law, the state must be the first to respect the law. If the state decides to enforce the law by not applying the law, it’s itself in a grave contradiction and I would never trust the politicians who say this is not true.

“Too big to fail”

A working group of experts is due to publish the results of its findings on Switzerland’s two big banks, UBS and Credit Suisse, at the end of September.

The government commissioned the report in April. It originally placed a deadline for publication by the end of the year but this was brought forward.

The government wants to know how to deal with the banks in the event that they collapse, endangering the whole Swiss economy.

The group is led by the former director of the federal finances, Peter Siegenthaler.

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Swiss Private Bankers Association

The organisation was founded in 1934 when Swiss Banking Law came into force. This legislation recognises the private bankers’ special position and status.

The SPBA today has 13 members, who employ about 6,000 people around the world.

Private bankers are subject to unlimited liability with their personal assets.

Originally, wholesalers, brokers, or forwarding agents, they specialised in credit business and bills of exchange related to goods trading. Nowadays they are specialists in asset management.

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