The Age of Alfred Escher (1848–1914) — a part of the book Zurich as an International Financial Centre by Dr Alexander Ressos.
Part D is devoted to the decisive half-century in which Zurich became the leading Swiss financial centre. Within two decades of the Federal Constitution, the city acquired private railway companies financed by its own capital, a universal bank, a federal polytechnic school, an organised stock exchange and a cantonal bank. One man stood at the centre of most of these developments: Alfred Escher, politician, railway entrepreneur and banker.
Chapter I examines Escher and the Nordostbahn, the Railway Act of 1852 and the financing of the private railways, together with the controversy over the “Escher system” that ended in nationalisation in 1898. Chapter II follows the Schweizerische Kreditanstalt, founded in 1856 to keep railway finance in Swiss hands, and the universal bank model it brought to Switzerland. Chapter III treats the Polytechnikum of 1855 as the foundation of the human capital on which Zurich’s engineering, insurance and financial industries came to rely. Chapter IV describes the rise of the Zurich stock exchange and its cantonal regulation up to 1914. Chapter V analyses the Zürcher Kantonalbank, created in 1870 by the democratic movement as a counterweight to the Escher system, and the state guarantee that still sets it apart. Chapter VI reads the Gotthard railway as Zurich’s first large international finance transaction, with its German, Italian and Swiss capital, its cost overruns and the fall of its president.
By 1914 Zurich had the institutions of a modern financial centre in place. Part E turns to the second pillar that grew beside the banks in the same decades: insurance and reinsurance.
This part belongs to Zurich as an International Financial Centre by Dr Alexander Ressos, published here in full, section by section.
Alfred Escher, the Nordostbahn and railway finance — overview and summary
Anyone who leaves Zurich’s main railway station by its southern portal walks past a bronze figure standing high on a fountain. Read more Zurich · The Age of Alfred EscherAlfred Escher: family, fortune and formation
Johann Heinrich Alfred Escher was born in Zurich on 20 February 1819 into the Escher vom Glas, one of the old patrician families of the city, whose members had held guild offices, sat in the councils… Read more Zurich · The Age of Alfred EscherThe railway question, 1836–1852
Switzerland came late to the railway age. Business circles in Zurich and Basel discussed projects to link the two cities, and thereby the Rhine and the emerging networks of France and Germany, from… Read more Zurich · The Age of Alfred EscherThe Schweizerische Nordostbahn
Escher did not wait for the Railway Act to be in force before organising a Zurich company. Read more Zurich · The Age of Alfred EscherForeign capital and the search for a domestic source of finance
The capital needs of the Swiss railways far exceeded the savings that the Swiss market could mobilise through the existing private banks. Read more Zurich · The Age of Alfred EscherThe “Escher system” and its critics
By the early 1860s Escher’s position in Zurich rested on an interlocking set of roles that no rival could match. Read more Zurich · The Age of Alfred EscherOverexpansion and crisis in the 1870s
The Franco-Prussian War of 1870–1871 exposed the weaknesses of a network planned by competing private companies under cantonal concessions. Read more Zurich · The Age of Alfred EscherFrom private railways to the SBB, 1883–1902
Escher died at Belvoir on 6 December 1882, a few months after the Gotthard line had opened without him. Read more Zurich · The Age of Alfred EscherThe legacy for the financial centre
The first and most durable legacy of the railway era is the connection between infrastructure and the capital market. Read more Zurich · The Age of Alfred EscherSchweizerische Kreditanstalt (1856): the universal bank model — overview and summary
For almost a century and a half, the sandstone palace on the north side of Paradeplatz served as the visual shorthand for Swiss banking. Read more Zurich · The Age of Alfred EscherThe models: the crédit mobilier in France and Germany
The institutional idea that Escher brought to Zurich originated in the Paris of the Second Empire. Read more Zurich · The Age of Alfred EscherRailways, foreign capital and the decision to found a Swiss bank
The immediate occasion for the foundation of the Kreditanstalt lay in the railway policy of the young federal state. Read more Zurich · The Age of Alfred EscherThe foundation of July 1856
The Schweizerische Kreditanstalt was constituted in Zurich on 5 July 1856. The English-language encyclopaedic literature gives the same date of foundation and adds that the bank opened for business… Read more Zurich · The Age of Alfred EscherEarly business, 1856–1870
The first and most important field of business was the financing of railways. The historical encyclopaedia describes the Kreditanstalt as a bank specialising in commercial credit and in the issuing… Read more Zurich · The Age of Alfred EscherGovernance, the state and the democratic critique
The early Kreditanstalt was governed in a manner that would be unthinkable under modern banking law. Read more Zurich · The Age of Alfred EscherCrises and consolidation, 1870–1914
By the end of the Franco-German War of 1870 and 1871, the Kreditanstalt had become the largest bank in Switzerland. Read more Zurich · The Age of Alfred EscherThe other Zurich banks of the era
The Kreditanstalt did not remain alone for long. In 1862, the Bank in Winterthur began business with an initial share capital of 5 million francs. Read more Zurich · The Age of Alfred EscherThe universal bank as the Swiss model
The term “universal bank” describes an institution that combines, within one legal entity, the collection of deposits and savings, the granting of short- and long-term credit to commerce and… Read more Zurich · The Age of Alfred EscherLegacy and forward look: from Kreditanstalt to Credit Suisse
The later history of the Kreditanstalt lies outside the period of this chapter and is told in Parts F and G. A brief outline shows how long the institutional pattern of the founding decades endured. Read more Zurich · The Age of Alfred EscherThe Polytechnikum (1855) and the human capital of the financial centre — overview and summary
A financial centre is usually described through its institutions: its banks and insurers, its exchange, its central bank, its regulators and its courts. Read more Zurich · The Age of Alfred EscherThe university article of 1848 and the compromise of 1854
The idea of a Swiss national institution of higher learning is older than the federal state. Read more Zurich · The Age of Alfred EscherThe opening of 1855 and the burden on the seat canton
The school that opened in October 1855 was organised in specialised divisions. The standard account lists five specialist schools, for architecture, civil engineering, mechanical engineering,… Read more Zurich · The Age of Alfred EscherThe early professors: an international faculty
The Polytechnikum could not have staffed its chairs from Swiss resources alone. Since Switzerland in the 1850s had few scientists and engineers of international standing, the school board recruited… Read more Zurich · The Age of Alfred EscherEngineering, mathematics, actuarial science and chemistry
The link between the Polytechnikum and the insurance industry can be dated with some precision. Read more Zurich · The Age of Alfred EscherThe University of Zurich, legal education and economics
The Polytechnikum did not arrive in an academic vacuum. Zurich had possessed a cantonal university since 29 April 1833, founded in the first years of the liberal regeneration described in Chapter… Read more Zurich · The Age of Alfred EscherKnowledge networks between academia, industry and finance
The industrial landscape of Zurich in 1855 was dominated by textiles and by the machine-building firms that had grown out of them. Read more Zurich · The Age of Alfred EscherFrom Polytechnikum to Eidgenössische Technische Hochschule (1905–1911)
By the end of the nineteenth century the Polytechnikum had outgrown the framework of 1854. Read more Zurich · The Age of Alfred EscherThe legacy: ETH Zurich and human capital as a location factor
The school of 1855 with fewer than seventy students has become an institution with about 27,000 students and doctoral candidates. Read more Zurich · The Age of Alfred EscherThe Zurich Stock Exchange and securities regulation — overview and summary
Anyone who walks today from Paradeplatz down the Bahnhofstrasse towards the lake passes, at the corner of the Börsenstrasse, a Neo-Renaissance building with a rounded corner tower that now houses a… Read more Zurich · The Age of Alfred EscherBefore the exchange: merchants, brokers and bills of exchange
Zurich had markets long before it had an exchange. The need for intermediaries who brought buyers and sellers together was felt first in the trade in goods and in bills of exchange. Read more Zurich · The Age of Alfred EscherThe Börsenverein of 1855 and the first Zurich market in securities
The decisive step in Zurich was taken in 1855, when merchants of the city founded the Börsenverein Zürich. Read more Zurich · The Age of Alfred EscherThe Effektenbörsenverein and the first exchange building
When exactly the Zurich stock exchange was founded is a question without a single answer. Each of the dates found in the literature marks a different stage in a gradual process. Read more Zurich · The Age of Alfred EscherSpeculation and crash: the railway crisis of the 1870s
The Zurich exchange building was designed and begun during the worst crisis that Swiss railway securities experienced in the nineteenth century. Read more Zurich · The Age of Alfred EscherThe cantonal law of 1883 on securities brokers and exchange agents
The first cantonal statute on the Zurich exchange was adopted by the voters of the canton on 2 December 1883. Read more Zurich · The Age of Alfred EscherThe ring and the working of the exchange
The method by which securities were traded in Zurich from the late nineteenth century until 1996 was the ring. Read more Zurich · The Age of Alfred EscherThe Swiss Code of Obligations of 1881 and the law of companies
The exchange could trade only in securities that the law allowed to be created. Before 1883, the law of companies was cantonal. Read more Zurich · The Age of Alfred EscherWhat Zurich traded: railways, banks, industry, the state and foreign issuers
Railway shares and bonds were the foundation of the Zurich market. As the largest issues with the widest ownership, they had prices that the whole country watched as a barometer of economic… Read more Zurich · The Age of Alfred EscherThe Wertpapiergesetz of 1896 and the reform of 1912
The railway fever of around 1890 and the difficulties of the following years led to a revision of the Zurich exchange legislation. Read more Zurich · The Age of Alfred EscherZurich, Basel and Geneva: competition among cantonal exchanges
Before 1914 Switzerland had no national exchange. Each of the larger commercial cantons had its own market, governed by its own law and serving its own community of banks and investors. Read more Zurich · The Age of Alfred EscherTaxing the exchange: stamp duties before 1917
Taxes on securities transactions have been a recurring theme in the history of the Swiss exchanges. Read more Zurich · The Age of Alfred EscherLegacy: from cantonal regulation to federal law and SIX
The first exchange building on the Bahnhofstrasse served until 1930. It was replaced by a new building in the so-called Börsenblock between the Talstrasse and the Schanzengraben, designed and built… Read more Zurich · The Age of Alfred EscherZürcher Kantonalbank (1870) and the democratic movement — overview and summary
Whoever walks along the Bahnhofstrasse from the main station towards the lake passes, a few steps before Paradeplatz, a long modernist building with a public hall, a bronze-grey façade and an iron… Read more Zurich · The Age of Alfred EscherThe democratic movement of the 1860s
The democratic movement of 1867 had older roots. Its programme had been formulated two decades earlier by men who belonged to the radical wing of the liberal camp and who concluded that the… Read more Zurich · The Age of Alfred EscherThe cantonal constitution of 1869
The elections to the constitutional council on 8 March 1868 took place with a turnout of 94 per cent. Read more Zurich · The Age of Alfred EscherCheap credit for farmers and small trades
The economic argument for a cantonal bank rested on the structure of rural credit in the canton. Read more Zurich · The Age of Alfred EscherThe Kantonalbank law of 1869 and the opening of the bank
The law that gave the bank its legal form was drafted in the summer and autumn of 1869 and submitted to the people under the new constitution. Read more Zurich · The Age of Alfred EscherEarly business, 1870–1914
The bank had hardly opened when the Franco-Prussian War broke out in the summer of 1870 and disrupted the money and capital markets of Europe. Read more Zurich · The Age of Alfred EscherThe cantonal bank model in Switzerland
The Zürcher Kantonalbank was neither the first nor the only cantonal bank. The HLS distinguishes two waves of foundations. The first cantonal bank was established in Bern in 1834. Read more Zurich · The Age of Alfred EscherThe Zürcher Kantonalbank in the twentieth century
The statutory mandate kept the Zürcher Kantonalbank out of the speculative ventures that brought several Swiss banks to grief in the interwar period. Read more Zurich · The Age of Alfred EscherThe Zürcher Kantonalbank today: law, governance and supervision
The current constitution of the canton of Zurich, adopted on 27 February 2005 and in force since 1 January 2006, contains in Article 109 the sentence: “Der Kanton betreibt eine Kantonalbank.” The… Read more Zurich · The Age of Alfred EscherComparisons: Leu & Co. and the German public banks
The two state banks of Zurich’s history were designed for opposite purposes. Leu & Co., founded in 1755 as the Zinskommission of the city-state, managed the surplus funds of the state and of private… Read more Zurich · The Age of Alfred EscherLegacy for the financial centre
The democratic movement of the 1860s left Zurich three legacies that shape its financial centre today. The first is institutional. Read more Zurich · The Age of Alfred EscherThe Gotthard railway and international capital — overview and summary
When a Zurich bank today arranges a syndicated loan for a foreign infrastructure project, when a Swiss law firm drafts an intercreditor agreement for lenders from three jurisdictions or when a… Read more Zurich · The Age of Alfred EscherThe Alpine transit question
The idea of a railway through the Alps was as old as the Swiss railway itself. Already in the late 1840s and early 1850s engineers and cantonal governments were drawing lines across the passes. Read more Zurich · The Age of Alfred EscherThe Gotthard conference of 1869 and the treaty of 15 October 1869
The diplomatic preparations took most of the 1860s. After Italy had indicated its preference for the Gotthard and the German states had come round to the same view, the Swiss Federal Council, pressed… Read more Zurich · The Age of Alfred EscherThe Gotthardbahn-Gesellschaft and its capital
Once the German accession had completed the treaty framework, the Gotthard association transferred its rights to a company founded for the purpose. Read more Zurich · The Age of Alfred EscherBuilding the line: Favre’s contract and the summit tunnel
The summit tunnel between Göschenen in Uri and Airolo in Ticino was the heart of the project and its greatest risk. Read more Zurich · The Age of Alfred EscherLabour, death and the Göschenen strike of 1875
The financial history of the Gotthard cannot be separated from the conditions under which the tunnel was built, because the pressure of Favre’s contract passed directly to the men at the face. Read more Zurich · The Age of Alfred EscherThe cost crisis of 1876 and the refinancing
The revelation came in 1876. After the redesign of the ramps and the first years of experience with the tunnel, Hellwag produced a new estimate of the cost to complete. Read more Zurich · The Age of Alfred EscherEscher’s fall
The crisis destroyed the position of the man who had created the project. The Historical Dictionary of Switzerland describes Escher’s last years as marked by setbacks. Read more Zurich · The Age of Alfred EscherBreakthrough, opening and the profitable decades
The two headings of the summit tunnel met on 29 February 1880. The Neue Zürcher Zeitung announced the event the next day with a single word: “Durch!”. Read more Zurich · The Age of Alfred EscherNationalisation and the Gotthard treaty of 1909
The nationalisation of the main Swiss railways, approved in the popular vote of 20 February 1898, is treated in Chapter D.I. The Gotthard presented a special case because of the treaty of 1869. Read more Zurich · The Age of Alfred EscherLessons for project finance and public-private partnership
Read with the eyes of a modern transaction lawyer, the Gotthard contains almost every element of a present-day infrastructure financing. Read more Zurich · The Age of Alfred EscherThe Gotthard base tunnel and the FinöV fund: a comparison
More than a century after the opening of the first Gotthard tunnel, Switzerland built a second, much longer tunnel under the same massif. Read more Zurich · The Age of Alfred EscherLegacy for Zurich as a centre for international transaction finance
The Gotthard left Zurich a double legacy. The first was institutional experience. The Kreditanstalt had led an international syndicate, negotiated with German and Italian banks as an equal, handled… Read more