Speech
Embargo
26 October 2020, 4.30 pm
The importance of good framework conditions for the Swiss
financial centre
Lugano Banking Day
Thomas J. Jordan∗
Chairman of the Governing Board
Swiss National Bank
Lugano, 26 October 2020
© Swiss National Bank, Zurich, 2020
Ladies and gentlemen,
I am pleased that this important event can go ahead at the second attempt, despite the
continuing exceptional circumstances. Of course, I regret very much that the audience cannot
be physically present. Despite all the digital possibilities available to us now, direct contact
with the general public and with business remains very important for the Swiss National
Bank.
Coronavirus has not only impeded the holding of this centenary celebration, it has also had a
far-reaching impact on the economy and our social interaction. I am therefore particularly
pleased to have this opportunity to congratulate the Ticino Banking Association in person on
its 100th anniversary.
As Chairman of the SNB's Governing Board, I visit Ticino often and have meetings with
representatives of the Ticino Banking Association on an annual basis - under normal
circumstances. The SNB has had good relations with your association for many years. This is
not surprising, since the Ticino financial centre has a long history, as this centenary
anniversary proves.
However, recent years have left their mark on banks and insurance companies in Ticino, as
elsewhere. The financial crisis, the end of banking secrecy, the tax treaty with Italy and now
the coronavirus pandemic have posed major challenges for many institutions. Nevertheless,
the Ticino financial centre continues to be vitally important for employment and value added
in the Italian-speaking region of Switzerland.
I will use my speech today to focus on aspects that I believe are important for the current and
future potential not only of the Ticino financial centre, but of the Swiss financial centre as a
whole.
But first, I want to talk about why a well-functioning financial centre is of value to our
economy.
I will start with insurance companies. Insurance companies bundle risks that households or
companies would otherwise have to bear themselves, or would even be unable to take in the
first place. And then, there are the banks. They perform a key economic role with their core
business of collecting deposits and granting loans. In doing so, they enable, for example,
private individuals to take out mortgages and companies to fund major investments.
Just how important the supply of credit is to the economy has been demonstrated by the
coronavirus crisis. This past spring, many companies in Switzerland experienced liquidity
shortages due to disruptions in economic activity. In order to supply liquidity to companies
quickly and with minimum red tape, the Federal Council drew up an aid package, together
with the SNB, the Swiss Financial Market Supervisory Authority FINMA, and the banks.
Under this programme, the banks grant loans to companies. The Confederation assumes the
default risk and the SNB provides the banks with liquidity through a new refinancing facility.
Thanks to this facility, banks can refinance these loans favourably at the SNB policy rate of
-0.75%. All indications are that the supply of credit and liquidity to small and medium-sized
enterprises in Switzerland is currently working well.
Another feature of the financial centre is that, in carrying out their activities, banks and
insurance companies themselves add value and create jobs. The financial sector is an
important employer in Switzerland, with around 218,000 full-time positions in 2018. In that
year, it generated a nominal gross value added of around CHF 63 billion, or almost 10% of
GDP.1 Its size, however, means that both positive and negative developments in the sector
have a particularly strong effect on Switzerland.
The SNB, too, is dependent on an efficient and effective financial sector. This is because by
granting loans, the commercial banks transmit our monetary policy to the Swiss economy.
And by participating in the Swiss franc repo market, insurance companies, too, play a role in
Swiss money market pricing. The financial sector thus makes an important contribution to the
transmission of our monetary policy.
Stable and well-capitalised banks
The global spread of coronavirus has led to a sharp deterioration in the economic environment
and financial market conditions. Nonetheless, banks in Switzerland have so far withstood the
effects of the pandemic well. Yet the turbulence has shown how important it is for banks and
insurance companies to have adequate capital and liquidity buffers.
A firm foundation for this is set out in Swiss legislation. Systemically important banks are
required to hold sufficient capital and liquidity buffers. These institutions are also required to
ensure their recovery or orderly wind-down in a crisis.
Over recent years, the globally active big banks have significantly strengthened their capital
bases, reduced their risk positions and implemented key organisational measures for crisis
management. The resilience of domestically focused banks is also good overall.
Thus, the regulations in place are particularly beneficial in the current environment given the
high levels of uncertainty caused by the coronavirus crisis. At the same time, by focusing on
the key aspects of capital, liquidity and resolution, regulations in Switzerland are typically
lean. This is because we believe it is important that market players in this country should be
subject to as few constraints as possible regarding their activities and their business model.
Solid currency and price stability
Another pillar of a stable and attractive financial centre is a reliable currency. A reliable
currency is one that holds its value over time, thereby ensuring price stability.
Our country has one of the most solid currencies in the world, namely the Swiss franc. No
other currency has retained its value so well since the outbreak of the First World War. Nor
has any other country kept average inflation lower than Switzerland.
But there is another side to this coin. In times of high uncertainty, the Swiss franc tends to
appreciate strongly, putting the economy under pressure and jeopardising price stability. We
have witnessed this again recently. As a result, the SNB has been faced with the challenge of
using its monetary policy to guarantee price stability in Switzerland.
With the negative interest rate and our willingness to intervene in the foreign exchange
market as necessary, we are able to counteract the attractiveness of Swiss franc investments.
Our goal here is always to ensure appropriate monetary conditions in Switzerland.
In general, an overvalued Swiss franc can pose a problem for the financial industry too. This
is especially true for the important business of wealth management, where returns mainly
accrue in foreign currencies, while costs are generally incurred in Swiss francs.
We are, of course, also aware of the challenge that the negative interest rate poses to the
financial sector. We have therefore reduced the burden it places on the Swiss banking system
to the level necessary for the implementation of monetary policy.
Once again, I must also stress that the low interest rate environment is a global phenomenon
with structural causes. This is unfortunately not something that Switzerland can escape.
Political and institutional framework
A further prerequisite for Swiss financial service providers to compete on an international level
is a sound political and institutional framework. Switzerland has long had stable political
relations, legal certainty, efficient authorities, and a solid and secure infrastructure. This
constitutes a strong underpinning for financial service providers.
But let us not rest on our laurels. We must try to avoid creating any administrative hurdles
that neither contribute to stability nor bring any great benefit, but instead unnecessarily
restrict the activities of financial service providers.
Transfer stamp tax and withholding tax, for instance, curb the potential for growth in
Switzerland. The reform of the withholding tax system and the abolition of transfer stamp tax
on domestic bonds are expected to strengthen the Swiss capital market.2 This would not only
benefit the financial sector, but also improve the financing options available to companies. It
would also benefit small and medium-sized enterprises, for which such opportunities have
been very limited until now.
Open market access
Switzerland undoubtedly owes much of the prosperity it enjoys today to open markets and
thriving trade. However, for the export-oriented parts of the Swiss financial industry, limited
market access continues to be an obstacle restricting growth potential.
Market access to some countries has deteriorated since the financial crisis. This especially
affects wealth managers who are operating in our relatively small domestic market. Measures
to facilitate market entry would therefore be helpful.
And there are new opportunities to be developed in the multilateral trading system too. Until
now, the liberalisation of global trade has focused on goods. Liberalisation of trade in services
could offer new growth potential for financial service providers.
Closing remarks
I come now to the end of my speech.
Ladies and gentlemen, good framework conditions are key to ensuring that our financial
centre remains a global leader. They must be safeguarded at all times, and, where appropriate,
improved.
In addition, and speaking more generally, good framework conditions help companies in all
sectors find corporate responses to challenges such as coronavirus, but also to structural
changes. They provide the foundation for private market participants to be economically
successful and compete at an international level. This is, of course, especially true of the
financial sector.
Thank you for your attention.