benefits from a prospering economy, because the demand for financial services from companies and private households increases, not least in the area of management and investment of assets. switzerland is a prime example of the positive interdependency between financial developments, on the one hand, and overall economic prosperity, on the other. in terms of the usual indicators of the financial development of a country – such as the size of the financial sector or access to financial services – switzerland has one of the most advanced cf. levine 2005. bis central bankers ’ speeches financial systems in the world. 2 at the same time, the economic importance of the banking industry in this country is above average. it generates an annual gross value added of some 6 % of gdp and currently employs about 150, 000 people. in addition, at least in the years before the financial crisis, the industry made a significant contribution to overall economic growth. 3 when banks are familiar with the local conditions and are also able to integrate knowledge concerning swiss macroeconomic conditions into their business decisions, this enables them to provide particularly efficient services to the swiss economy. it is therefore advantageous for our country to have locally established banks which make their decisions here in switzerland. it is not only with services which benefit companies and households located in switzerland that the swiss banking industry creates value added. as we all know, the industry is also very active in the international arena – on the one hand, via exports, 4 that is, through the cross - border provision of financial services from switzerland, and on the other, through its actual presence abroad. in this respect, the most important source of income is the crossborder wealth management business for private customers. with a share of an estimated 26 % of the world market, the swiss banking centre is the leader in this area. 5 in addition, the two big banks, ubs and cs, are among the most important institutions worldwide in some areas of investment banking, such as derivatives and foreign exchange trading. how did switzerland, a comparatively small country, end up with a banking centre with such a wide international reach? a number of different elements may serve to explain this. first, i would like to mention the conditions which make the banking centre attractive for international investors. they include political, legal and economic stability, reliable banks, and a convertible currency whose value remains stable. in addition, a role in the steady inflow of foreign funds was played by the banking secrecy provisions established in 1934 and the enhanced protection of privacy associated

with these provisions. these advantages appear particularly striking from a historical point of view, since, after the two world wars, neutral switzerland presented a great contrast to the surrounding countries, which were suffering from currency turmoil, inflation and an increased risk of expropriation. 6 second, switzerland ’ s prosperity and the relatively narrow local capital market – in terms of swiss economic power – mean that swiss investors seek investment opportunities beyond the national borders. at the same time, our economy also has a strong international focus. to a large extent, swiss companies, households and institutional investors would be in a position to call upon the services of international swiss banks for their asset investments and business operations abroad. third, the international position of the banking centre is closely related to the growth and expansion of the international business of the big banks, which has forged ahead since the 1990s. 7 this expansion was motivated, not least, by the desire to move into new, potentially profitable investment banking areas. thus, the expansion of the balance sheets of the two cf. cihak et al. 2012. cf. bakbasel 2013. these comments here are limited to banks. apart from banks, the financial industry also includes insurance service providers which, in switzerland, generate 4 – 5 % of additional value added. in 2012, income from exports of bank services contributed some 20 % to switzerland ’ s current account surplus. cf. swiss national bank 2013b. cf. swiss bankers association 2013. in terms of the level of total managed assets, both onshore and offshore, ubs is also currently the leading bank worldwide. cf. straumann 2006. cf., for example, tille 2010. bis central bankers ’ speeches big banks in the 15 years before the financial crisis is largely attributable to investment banking. 8 manifold challenges for the swiss banking centre since the onset of the financial crisis, however, the international operations of the swiss banks have come under increased pressure on a number of fronts. first, the financial crisis has shown that a large, highly developed and internationally integrated banking industry means risks as well as growth opportunities. in particular, the crisis clearly demonstrated that some individual banks are so important for the economy that they have to be rescued by the state in the event of a crisis. this is the “ too big to fail ” ( tbtf ) issue. because of the de facto state guarantee associated with the tbtf issue, the borrowing costs of these kinds of bank are implicitly subsidised