Even though, in the short term, the transitional phase would generate some costs for those regulated, this is clearly outweighed by the long-term advantages. Is international competitiveness being weakened? The second concern expressed is that tougher banking regulation would have negative repercussions for the Swiss financial centre if it is stricter or too strict compared with other countries in relative terms. Critics say that this would be a disadvantage in international competition, with far-reaching consequences such as a weakening – or even redimensioning – of the Swiss financial centre. They claim that customer assets and international companies would move abroad, since the Swiss financial centre would no longer offer a comprehensive range of banking services. Switzerland would therefore lose jobs and create less added value, they believe. Key factors for international competitiveness One significant aspect of the discussion about the repercussions of regulatory differences is that other factors are at least as decisive for the international competitiveness of the Swiss banks. These include favourable tax conditions, political and economic stability, a high degree of legal certainty, excellent asset management expertise and high standards in the banking business generally. Overall, this “Swissness” represents a crucial success factor for the banks when it comes to competing internationally with other financial centres. 6  Nor is there a connection, empirically speaking, with passing on the banks’ financing costs to customers: during the phase when the banks were constantly reducing their capital ratios, the spread between the borrowing rate and the lending rate did not narrow (Cf. Kugler, 2011.

The two exceptions are the Great Contraction of 2008–9 and the “phantom” slowdown after the 1997–8 Asia/LTCM crisis, when early vintages of the official data for output as well as business surveys pointed to a slowing in growth that was not subsequently borne out in mature vintages of the official data. And for both these episodes, 2 no forecaster came close to predicting the outcome. The generic point here – which holds true in fuller analyses over longer time periods – is that the big divergences, when they occur, are not between the central forecasts made by different bodies, but rather between those forecasts and the corresponding outturns. And that is as it should be: deviations of outturns from central (mean) forecasts should be unpredictable if those forecasters are using the information that is available to them efficiently. Why then, as the Queen famously asked at the London School of Economics in November 2008, did no-one see the Great Contraction coming? Some economic downturns are broadly predictable in nature. In particular, that is the case when they are deliberately policy-induced in order to squeeze inflation down, though even then it may still be difficult to get the magnitude and timing right, and there will always be other unexpected events that perturb the path of the economy. But downturns associated with financial or banking crises are rather different animals. Rapid growth in credit and asset prices can act as a warning sign of building vulnerabilities, but frequently appear to be validated by developments in underlying economic fundamentals.