Switzerland: What Does It Take to Remain a Leading Financial Centre?
The financial services industry is undergoing sweeping changes worldwide, and competition between international financial centers has grown fiercer in recent years. In order to preserve and even improve the competitiveness of Switzerland as a financial center, substantial efforts are required from banks as well as from policymakers. As in 2012 and 2014, Credit Suisse is presenting a study on the Swiss Financial Center.
Urs Rohner, Chairman of the Board of Directors of Credit Suisse Group AG, initiated this series of publications with the goal of providing input on and contributing towards the long-term strengthening of our financial center's international competitiveness: "All relevant interest groups – the banks themselves, as well as political decision-makers and supervisory authorities – are called on to play their part. To this end, we are presenting specific recommendations for courses of action by the various stakeholders, to be updated on an ongoing basis."
Focus on Impact of Negative Interest Rates
The trends identified in previous years have established themselves and in some cases become even more pronounced. This applies in particular to the macroeconomic environment, which is why the study examines low and negative interest rates and their consequences in detail. In the context of negative interest rate policy, particular attention is given to the real estate market and reductions in pension fund benefits.
Swiss Too-Big-to-Fail Policy Among the Toughest Worldwide
Regulatory standards for banks have been significantly tightened worldwide. Switzerland is an international leader in the area of too-big-to-fail regulation, both in terms of requirements for risk-weighted positions and with regard to their size in relation to the balance sheet. The additional resolution capital required makes a bailout by taxpayers even less likely. In addition, major banks have substantially reduced their balance sheets. Switzerland is also rapidly implementing comprehensive new rules on the automatic exchange of information, while the final stage of modernizing financial market regulations is pending.
It is a logical conclusion that Switzerland's two major banks are establishing independent Swiss legal entities – including systemically important functions. The Swiss home market is of central importance to Credit Suisse, as Thomas Gottstein, CEO Swiss Universal Bank at Credit Suisse, affirms: "The trends revealed by the study confirm our strategy. We want a secure, well-capitalized bank that has a clear focus on Switzerland while being part of a global network. This is of central importance in order to successfully advise Swiss businesses, companies, and entrepreneurs. We want to be a 'Bank for Entrepreneurs.'"
Positioning in the Areas of Digitalization and Sustainability Is of Central Importance
In an environment defined by extremely low interest rates and tightened regulation, Swiss banks need to pursue new business lines. In particular, the continuous advancement of digitalization offers a number of opportunities. Digitalization of the financial world stands to substantially alter the banking business: from payment operations to digital trading and advisory platforms to virtual currencies and applications in the compliance area (RegTech). Rationalization of processes in the banking sector as well as consolidation of and changes to distribution channels are expected. The client-bank relationship will also be fundamentally changed by the strengthening of the position of clients. Continuous, concentrated efforts are required in order to put Switzerland on the digitalization map because Swiss FinTech initiatives still remain relatively fragmented by comparison. FinTech promotion programs like DigitalZurich2025 are taking a targeted approach to addressing challenges such as the lack of venture capital. The recently established Swiss FinTech Innovations association can bundle important initiatives, driving the exchange of knowledge between players from the financial industry and financial technology, science, service providers and government authorities.
An additional, increasingly important topic, that of sustainability and the attendant business opportunities in the financial industry, is analyzed in depth for the first time in the current study. Switzerland is well positioned to benefit from the related trends and should take advantage of them to further strengthen its internationally recognized status in sustainable finance. In contrast with other financial centers, private investors in Switzerland play a relatively important role in the area of sustainability. The increase in the share of institutional investors also presents a significant opportunity for growth. Here, Switzerland can develop its distinctive strengths, namely in the field of microfinance and other "impact investment" areas. Swiss Sustainable Finance now serves as an appropriate platform for this area.
After a brief look at select international finance centers, the publication offers specific recommendations for action, divided into those aimed at government, the Federal Assembly, and supervisory authorities on one hand, and banks and business on the other. Dealing with the low interest rate environment constructively, ensuring and improving market access abroad, successfully managing digitalization, stronger incorporation of sustainability into business activities, pragmatic regulation, and further increasing the general attractiveness as a location for business and industry are key to the future success of Switzerland as a Financial Center.