Does Switzerland need a huge global bank?

UBS bank has grown in size since buying Credit Suisse. Neil Hall / Keystone

A fierce debate is raging in Switzerland about the wisdom of having a single giant bank. Some argue the country will benefit from an enlarged UBS, while others say it threatens the economy.

UBS has emerged as Switzerland’s sole global banking powerhouse after it bought its rival, Credit Suisse, in 2023.

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Active around the world, UBS combines wealth and asset management with investment banking and domestic retail services for individuals and companies. It also has a balance sheet twice the size of the entire annual Swiss economic output.

The Swiss Bankers Association (SBA) believes size equals strength when competing against other large banks worldwide. “If Switzerland wants to play the role of an international financial centre, it needs at least one large international bank,” the SBA argues.

Many politicians, including Peter Hegglin from the Centre Party, equate size with risk should UBS collapse. “The United States is better able to absorb such shocks thanks to its economic strength,” he told SWI swissinfo.ch. “This is much less the case for Europe and Switzerland.”

Foreign bank exodus

One argument being made in favour of a large Swiss global bank is that it can better serve domestic multinational companies and exporters. Swissmem, a lobby group for the manufacturing industry, says it’s convenient to have a bank that can handle international transactions, issue loans, hedge currency risks and offer access to the capital markets under one roof.

“A shared culture and common language are soft factors that should not be underestimated. Our companies must be able to rely on the bank to stand by them even in difficult situations,” Swissmem told SWI swissinfo in an emailed statement.

Swiss companies also felt abandoned by foreign-controlled banks that left in droves after the financial crisis, according to Swissmem. The number of foreign banks in Switzerland more than halved between 2008 (123) and 2022 (61).

“This is a bad memory that still reverberates today,” the lobby group stated.

Swiss pharmaceutical heavyweight Roche also endorses the existence of a large global bank. “Swiss banks that have critical mass and are networked in the international financial system are of great value for multinational companies in Switzerland,” the company told SWI swissinfo in an email. “Larger Swiss-based banks facilitate the use of Swiss francs in business and financial transactions.” 

Post-war boom

Switzerland has spent generations building up a powerful financial sector that punches well above the economic weight of the country. Private banks trace their roots back 250 years, but the Swiss financial centre turned into a true global force following the two world wars of the 20^th century.

“After the Second World War, huge flows of capital came into Switzerland. It was an exceptionally strong growth period for the Swiss financial sector,” PhD economist Rebecca Stuart, who lectures at the University of Neuchâtel, told SWI swissinfo.ch. “Many people thought it safer to hold their assets outside of their own countries, and Switzerland offered political and economic stability.”

“With so many foreign clients, Swiss banks decided they could handle their assets more efficiently and provide better services by opening foreign branches rather than rely on intermediary banks in other countries,” she added.

The first few decades after the Second World War were a time of booming business, exponential growth and fat profit margins for Swiss banks. But the good times had a limited shelf life.

Competition in international finance heated up in the 1980s as the United States and Britain stripped away regulations that had held banking activities in check. Deregulation paved the way for the creation of larger banks that ran commercial and investment banking operations under one roof.

The end of the Cold War in the early 1990s also reduced neutral Switzerland’s allure as a safe haven against geopolitical uncertainty and potential conflict, argues financial historian Tobias Straumann.

Golden Age over

“The golden age is over,” Straumann told the Handelszeitung newspaper, while also citing the end of strict Swiss banking secrecy following pressure from the US.

Switzerland has nevertheless retained its status as the number one venue for private banking despite growing pressure from other countries. With CHF3.8 trillion ($4.3 trillion) in invested assets, UBS stands at the top of the Swiss wealth management tree – and has ambitions to boost client assets to $5 trillion.

The SBA and some politicians believe that only a large Swiss bank that combines wealth management with investment banking can compete on the global stage with the likes of JP Morgan, HSBC and BNP Paribas.

This sentiment extends beyond mere prestige. One prevailing argument is that Switzerland needs a powerhouse global bank to preserve its financial sovereignty in an uncertain world awash with geopolitical risk.

“To avoid becoming dependent on the Americans or the British, Switzerland needs a globally operating bank,” Swiss financial sector heavyweight, Josef Ackermann, who started his career at Credit Suisse before a stint as CEO of Deutsche Bank, told the Tages Anzeiger newspaper in December.

Risk vs reward

But Rebecca Stuart believes this stance downplays the risks associated with a single global bank operating in a small economy with no other domestic competitor.

“Financial sovereignty was one of the arguments used to justify UBS buying Credit Suisse rather than a foreign buyer or a state takeover,” she said. “But this appears to be a naïve approach.”

“Does Switzerland need one massive bank with global reach in wealth management and investment banking? It might make more sense to dilute risk by separating these businesses into separate entities.”

UBS chair Colm Kelleher, however, sees no problem with the size of his bank. In a March 2024 interview with the NZZ am Sonntag newspaper, Kelleher argued that the size of the risk a bank takes on is more important than the size of its balance sheet.

UBS, he said, is more focused on wealth management than the risky investment banking operations favoured by Credit Suisse: “The question [of size] is hypothetical as long as UBS retains its current model.”

Edited by Reto Gysi von Wartburg/gw