After the crash: liquidation, liability and politics

Depositors without protection

The depositors of 1914 stood at the end of the line. Swiss law gave them no deposit insurance, no priority over other creditors and no claim against the canton, whatever the name of the bank they had trusted. In the bankruptcy of the Credito Ticinese and the liquidation of the Banca Cantonale Ticinese they ranked as ordinary unsecured creditors under the Federal Debt Enforcement and Bankruptcy Act of 1889. Their recovery depended on the value of the loans and securities that the banks held, which had to be realized in a market depressed first by the crisis and then by the war.¹ Savings that families had accumulated over decades, often from emigrant remittances, were lost in large part. The Associazione Bancaria Ticinese still describes the loss of more than CHF 30 million in savings as the moment when a note of pessimism entered the history of Ticinese banking.²

The liquidations took years. The war that began in August 1914 made it hard to sell Italian assets and tourist properties, since Italy entered the war in May 1915 and the hotels of Lugano and Locarno stood empty. The Federal Council's emergency measures for the hotel trade protected debtors and thereby delayed recoveries for their creditors. The Banca del Ticino, created to facilitate the liquidations, administered part of the assets. The Swiss National Bank, which had provided CHF 100,000 against its exposure, could report in its 1914 annual report that the provision would probably not be fully needed.³ For the depositors, who had no such reserve, the outcome was very different.

A shareholder's claim before the Federal Court

The judgment of the Federal Court in Rezzonico v. Banca della Svizzera Italiana of 13 September 1917 is the most detailed published judicial account of the crash. It also illustrates how private law protected investors in the absence of any securities regulation.⁴ The plaintiff had bought six shares of the Credito Ticinese through the Locarno agent of the BSI on the morning of 7 January 1914, when the board of the Credito Ticinese already knew that the bank was insolvent and the director of the BSI had been told of its difficulties. He sued the BSI for the return of the price. The cantonal court rejected the claim. On appeal the Federal Court reversed the judgment.

The court first rejected the argument that the BSI had committed fraud within the meaning of Article 28 of the Code of Obligations. Mere knowledge that the affairs of a company were not flourishing and that it found itself in temporary financial difficulty did not, in the court's view, make the sale of its shares fraudulent. The court then turned to the doctrine of essential error under Article 24 of the Code of Obligations. A buyer of shares, it reasoned, acquires the essential rights of a shareholder, among them the right to take part in the administration of a going concern. When the company is already insolvent at the time of the sale, those rights are illusory. The buyer's error then concerns a necessary element of the contract. The BSI was ordered to repay CHF 2,970 with interest at five per cent from 5 February 1914.⁵

The reasoning has a modern resonance. The court did not need to decide whether the BSI's director, who had participated in the crisis meetings, had misused confidential information. Swiss law of 1914 had no rule against insider dealing. Today the same facts would raise questions under the criminal and administrative provisions on insider trading in the Financial Market Infrastructure Act and under the information and conduct duties of the Financial Services Act, which oblige financial service providers to inform clients of the risks of financial instruments.⁶ The judgment of 1917 reached a fair result through the general law of contract. Its reliance on error, a remedy that depends on the facts of each case, shows how thin the protection of investors was before financial market law existed.

Notes

1. Federal Act on Debt Enforcement and Bankruptcy of 11 April 1889, SR 281.1. ↩
2. Associazione Bancaria Ticinese, "Cenni storici" (as above): "Una nota di pessimismo giunge con la crisi politica [...] portando al fallimento due istituti". ↩
3. Swiss National Bank, Geschäftsbericht 1914 (as above), on the provision of CHF 100,000, which "voraussichtlich nicht voll beansprucht werden" would be. On Italy's declaration of war on Austria-Hungary of 23 May 1915 see "Italian front (World War I)", Wikipedia, https://en.wikipedia.org/wiki/Italian_front_(World_War_I), used as a last resort. ↩
4. BGE 43 II 487 (as above). ↩
5. BGE 43 II 487 (as above), with the passage on fraud: knowledge that "gli affari della società [...] non siano floridi e l'istituto si trovi momentaneamente in istrettezze finanziarie" was not sufficient. ↩
6. Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading of 19 June 2015 (FMIA), SR 958.1, Art. 142 (exploitation of insider information as inadmissible market conduct), https://www.droit-bilingue.ch/en-de/9/95/958.1-142-151.html, and Art. 154 (criminal offence of exploiting insider information), https://www.droit-bilingue.ch/en-de/9/95/958.1-154-163.html; Federal Act on Financial Services of 15 June 2018 (FinSA), SR 950.1, Arts. 7–9, in particular Art. 8(1)(d) on "the general risks associated with financial instruments", https://www.droit-bilingue.ch/en-it/9/95/950.1-8-11.html. ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of August 2025.