The fight for a Glass-Steagall type banking sepearation in Switzerland is now reaching the boiling point, with the Swiss Banking Association being forced to come out in the open and attack proposed legislation in Switzerland for Bank Separation, while a grouping of political forces are now consolidating their fight to force the legislation. Below, are the two items of this story.
1.Unpopular Swiss Bank Lobby Attacks Bank Separation
The head of the Swiss Banking Association, Patrick Odier, attacked the SP-SVP initiative to split the banks in an interview with the Tagesanzeiger on Monday, and got a 99% negative readers reaction.
To the question "a majority composed by SP and SVP wants to solve the Too-Big-To-Fail problem. Are current regulations sufficient?", Odier answers that Swiss banks have massively reduced investment banking and proprietary trading, as well as improved their leverage ratio. However, a "bailout by the state cannot be excluded" with the current regulations. Further on, Odier says that banks must be resolved without taxpayers' money (meaning bail-in, although without using the name). Quite contradictory.
The overwhelming majority of readers' comments reject Odier's arguments. Some readers hint to the Finma bail-in guidelines, and say that, if they prepare guidelines, there must be a reason, i.e. threat of insolvency.
A certain Rainer Apel wrote: "Herr Odier is right that even small banks can unleash big crises: look at IKB 2007 in Germany. But what do we do with the derivatives bubble? This requires a bank separation system, preferably in the Glass-Steagall classical version. By the way, this is what three initiatives in the US Congress are pushing for (Mccain/Warren), (Harkin) and (Kaptur/Jones). If they are successful, Europe must adapt itself."
2.Switzerland: The Alliance for Bank Separation Consolidates
On Sept. 19, the task-oriented alliance between the Social Democrats (SP) and Swiss People's Party (SPP) took one step further, by filing two almost identical motions for banking separation. Both provide guidelines to the government (Federal Council) for producing a draft bill. Both have 4 identical points, while that of the SPP has one additional point. Here are the four identical points:
- " The Federal Council is mandated to prepare a draft bill to solve the "Too Big to Fail" (TNTF) problem according to the following guidelines:
- "1. Fundamental separation of capital-management and commercial banks on the one side, and banks with proprietary trading [Eigenhandel] on the other.
- "2. Commercial and Capital-management banks deal with savings, credit and commercial business.
- "3. Commercial and Capital-management banks shall operate no proprietary trading, but they may manage emissions of shares and classical obligations [bonds] to the purpose of financing companies, as well as Federal, Cantonal and Communal debt titles.
- "4. Swiss Commercial and Capital-management banks may not have credit relationships with their foreign subsidiaries, which deal with proprietary trading."
The SPP motion, in Point 4, includes "domestic" along with "foreign" subsidiaries. Its fifth point calls for a 6% non-risk-weighted capital ratio. The SP has a separate motion, proposing a 10% ratio.
The banking lobby, as to be expected, is reacting with great nervousness. The Neue Zuericher Zeitung somehow hallucinated that there is a concession to investment banking.
UBS chief Sergio Ermotti, on the contrary, chose to declare war in an interview with the economic magazine L'Agefi. While the apparent subject of the interview was the UBS gains from its investments in Vodafone, his remarks came down to an attack on the bank separation initiative, and, in particular, on SPP leader Christoph Blocher. In view of those financial gains, Ermotti said, it is understandable why people who want to strengthen the Swiss financial center and its banks, keep pushing bank separation. "It is also fundamentally difficult to carry out a professional discussion on the issue," he protested.
Citing the promising Swiss developments in the context of a discussion on the battle for Glass-Steagall, Lyndon LaRouche noted that the Swiss are pulling out, "they're not going to go with this anymore. They know they can't survive it. The Swiss economy and the Swiss society are different, the way they react is different from the rest of Europe."
Switzerland is not a member of the Eurozone.
swiss flag image by Noebu
