Banks of issue before 1907

The first note-issuing banks

The Coinage Act of 1850 regulated coins. Paper money, a different matter, remained for more than half a century in the hands of a variety of cantonal and private banks. The first Swiss banknotes were issued in 1825 by the Deposito-Cassa der Stadt Bern, in denominations of 500 francs, to deal with budget shortfalls.¹ The note-issuing banks proper emerged during the liberal regeneration of the 1830s. The Historical Lexicon describes the system as decentralised, with a number of public and private banks holding the privilege of issue.² Julius Landmann, writing in 1910 for the United States National Monetary Commission, listed as the first Swiss bank authorised to issue notes the Cantonal Bank of Bern, established in 1834, followed by the Bank in Zürich (1836), the Bank in St. Gallen (1837), the Bank in Basel (1844), the Banque du Commerce in Geneva (1845) and the Banque de Genève (1848).³ The Vaud cantonal bank, founded in 1845, also issued notes from the beginning.⁴

The Bank in Zürich was founded in 1836 and opened for business in 1837, the year in which the first Zurich banknotes were issued.⁵ It was a discount bank promoted by liberal industrialists and merchants to supply the business credit and means of payment that the growing trade of the city required.⁶ Its headquarters were later located in the Zunfthaus zur Meisen. Its history spanned almost seventy years. Under Paul Carl Eduard von Orelli, its director from 1892, it entered into a close association with the Schweizerische Kreditanstalt on 14 January 1905, which amounted in substance to a merger, although the bank formally remained a separate corporation. The final absorption was completed only by an agreement of December 1982.⁷

The early history of the Bank in Zürich illustrates both the ambitions and the difficulties of private note issue. As noted in section III, its notes were first denominated in Brabant thalers and were overstamped in 1841 to allow redemption in thalers or French francs. In 1848 the bank concluded a bilateral agreement with the Bank in Basel on the mutual acceptance of notes.⁸ In 1856 it became the first Swiss bank to treat gold and silver as equivalent for the redemption of its notes, an adaptation to the de facto dominance of French gold in circulation. In 1864 it joined a concordat with the banks of Basel and St. Gallen on the mutual acceptance of notes, a forerunner of the national concordat of 1876.⁹ Denominations of 50, 100, 500 and 1,000 francs made the notes instruments of wholesale trade and interbank settlement, while small everyday payments continued to be made in coin.

Growth and fragmentation, 1850 to 1880

The eight note-issuing institutions that existed in Switzerland in 1850 had grown to thirty-six by 1879.¹⁰ Landmann gives twenty-four banks of issue for 1870 and thirty-six by the end of 1881.¹¹ Over the whole period more than sixty institutions issued their own notes.¹² The growth was driven above all by the cantonal banks founded from the 1860s onwards, which regarded note issue as a source of cheap funding and a mark of cantonal economic sovereignty. The founding of the Zürcher Kantonalbank in 1870, discussed in Part D, belongs to this wave.

The economist F. Ritzmann, in a contribution to the Swiss Journal of Economics and Statistics, characterised the period until 1876 as one of unhindered banknote competition, preceded by a period of currency competition that lasted until 1852. His figures show the total note circulation rising from 19 million francs in 1870 to 77 million in 1875, 93 million in 1880, 152 million in 1890, 217 million in 1900 and 233 million in 1905, with metallic reserves rising from 20 to 117 million over the same period. After 1875 the ratio of notes to reserves settled at about two to one.¹³

The multiplicity of issuers created practical problems. Notes of one bank were accepted by others only at a discount or not at all. They circulated regionally and had to be returned to the issuer for redemption. In a crisis, moreover, the public rushed to convert notes into coin. The Franco-Prussian War of 1870 caused an acute payment crisis in Switzerland, as French gold ceased to flow and the notes of the Swiss banks came under pressure.¹⁴ The banks tried to address the problems through co-operation. On 8 July 1876 a concordat was concluded under which participating banks undertook to accept each other’s notes, to collect matured bills, to cash drafts and to exchange weekly and monthly balance sheets. By 1 July 1878 twenty-four of thirty-two banks had joined, but the banks remaining outside undermined its effectiveness.¹⁵

From the Constitution of 1874 to the Banknote Act of 1881

The Constitution of 1848 had said nothing about banknotes. The total revision of 29 May 1874 authorised the Confederation to legislate on the issue and redemption of banknotes, but Article 39 expressly prohibited it from establishing any monopoly of note issue.¹⁶ The prohibition expressed the strength of the cantonal and private interests in note issue and reflected a widespread liberal conviction that competition among issuers was preferable to a state monopoly. A first federal banknote law failed in the referendum of 1876, although the Federal Council itself acknowledged persistent abuses in the system of note issue.¹⁷

The democratic movement pressed for more radical change. Wilhelm Joos, a National Councillor from Schaffhausen close to the Democrats, launched a popular initiative after the failure of his parliamentary motion, proposing to revise Article 39 and to give the Confederation the monopoly of note issue. Because the Constitution then provided only for initiatives for a total revision, the proposal was put to the people as a question on total revision. In the vote of 31 October 1880 only 31.8 per cent supported it. Yes-majorities appeared only in five German-speaking cantons, led by Glarus with 68.8 per cent. French-speaking Switzerland rejected the proposal overwhelmingly, Vaud with only 1.7 per cent in favour.¹⁸ The linguistic pattern of the vote is striking: western Switzerland, whose banking culture was shaped by Geneva and Lausanne, defended the freedom of note issue, while parts of eastern Switzerland were ready for centralisation. Zurich, the seat of the country’s largest commercial bank and of an important cantonal bank of issue, did not produce a yes-majority.

Parliament then adopted the Federal Act on the Issue and Redemption of Banknotes of 8 March 1881.¹⁹ According to Landmann’s analysis, the Act required a minimum capital of 500,000 francs, limited the note issue of each bank to twice its paid-up capital, and required a metallic reserve of forty per cent of the notes in circulation to be held in specie. The remaining sixty per cent could be covered by securities, a cantonal guarantee or a portfolio of bills. Besides paying a tax of one per cent to the Confederation, to which the cantons could add a further charge, the banks were subject to federal inspection and had to publish periodic balance sheets.²⁰ The Act also standardised the denominations at 50, 100, 500 and 1,000 francs, prescribed a uniform format and text for all notes and subjected the banks of issue to state control, which strengthened public confidence in paper money.²¹ The resulting notes, which differed only in the name of the issuing bank, are known to collectors as concordat notes or uniform notes.

The Act of 1881 was the first federal financial market regulation in Swiss history. It introduced, in a rudimentary form, the elements that still characterise banking regulation: minimum capital, liquidity requirements in the form of a metallic reserve, limits on activity in relation to capital, disclosure through published balance sheets and supervision by a federal authority. The lawyer reading the Act today will recognise in it the ancestor of the capital and liquidity rules of the Banking Act and of the Basel framework, even though its scope was limited to note-issuing banks and its instruments were crude. The special inspectorate for banks of issue, set up within the federal finance department under a decree of 21 December 1881 to supervise compliance, was an early form of the federal banking supervision that would be created only in 1934.²²

Monopoly and the road to the Swiss National Bank

The Act of 1881 did not end the debate. Ritzmann argues that the rigid emission quotas, the fixed taxes and the liquidity provisions of the Act made the note supply inflexible. The banks, which bore high fixed costs, had an incentive to keep their issue at the permitted maximum regardless of seasonal demand. In the deflation of the 1870s and early 1880s they found themselves in difficult positions. In his view the problems of the later nineteenth century resulted from poorly designed regulation, a case of what he calls state failure (Staatsversagen).²³ Ritzmann wrote in response to Manfred Neldner, who had interpreted the Swiss experience as evidence that competition among issuers tends to produce excess. Neldner later published his thesis in English under the title “Competition Necessarily Tends to Produce Excess: The Experience of Free Banking in Switzerland”.²⁴ The Swiss note-issuing system of the nineteenth century has thus become a reference case in the international academic debate on free banking, with the Zurich and Basel banks of issue among its protagonists.

Contemporaries took a more practical view. Persistent currency problems, the pressure on the exchange rate of the franc in the 1880s and 1890s and the absence of a lender of last resort made the decentralised system appear untenable.²⁵ On 18 October 1891 the people and the cantons adopted a new Article 39 of the Federal Constitution, which transferred the monopoly of note issue to the Confederation.²⁶ Because the constitutional article left open how the monopoly was to be exercised, the question of whether a pure state bank or a joint-stock bank with private participation should hold it occupied the next fourteen years. A law establishing a state-owned central bank was rejected in the referendum of 28 February 1897 by 255,984 votes to 195,764.²⁷

The compromise came with the Federal Act on the Swiss National Bank of 6 October 1905, which created a special-statute joint-stock company with participation of the cantons, the former banks of issue and private shareholders.²⁸ The Swiss National Bank opened for business on 20 June 1907 and initially issued interim notes based on the designs of the former banks of issue, marked with a red rosette containing the Swiss cross.²⁹ The thirty-six remaining banks of issue wound up their note business by 1910.³⁰ The federal compromise of 1848 reappeared in the organisation of the new institution. Its legal and administrative seat was established in Bern, while the governing board had its seat in Zurich, where it moved in 1922 into a neo-baroque building.³¹ The later history of the National Bank belongs to Part F.

Notes

1. HLS, Olivier Frédéric Dubuis, “Banknoten”, http://www.hls-dhs-dss.ch/textes/d/D13750.php. ↩
2. HLS, Peter Püntener, “Notenbanken”, http://www.hls-dhs-dss.ch/textes/d/D13746.php. ↩
3. Julius Landmann, The Swiss Banking Law: Study and Criticism of the Swiss Legislation Respecting Banks of Issue, and Especially of the Federal Act of October 6, 1905, Concerning the Swiss National Bank (Washington: National Monetary Commission, 1910), historical introduction, full text at https://fraser.stlouisfed.org/title/swiss-banking-law-667/fulltext. ↩
4. HLS, Olivier Frédéric Dubuis, “Banknoten”, http://www.hls-dhs-dss.ch/textes/d/D13750.php. ↩
5. MoneyMuseum Zürich, “Die Zürcher und ihr Geld”, https://www.moneymuseum.com/pdf/archiv/Die%20Zuercher%20und%20ihr%20Geld.pdf, which states that the first Zurich banknotes were issued in 1837. On the dates of foundation see also HLS, Martin Körner, “Banken”, http://www.hls-dhs-dss.ch/textes/d/D14061.php. ↩
6. HLS, Martin Körner and Youssef Cassis, “Banken”, version of 17.08.2006, https://hls-dhs-dss.ch/de/articles/014061/2006-08-17/, which states that the growth of trade during the Regeneration increased the demand for means of payment and business credit, that liberal and radical industrialists and merchants campaigned for central discount banks in their cantons, and that the Bank in Zürich was founded in 1837 in this context. ↩
7. Wikipedia (en), “Bank in Zürich”, https://en.wikipedia.org/wiki/Bank_in_Z%C3%BCrich. ↩
8. Trafina Privatbank, “Basler Banknoten”, https://www.trafina.ch/aktuell/basler-banknoten. The same article dates the first notes of the Bank in Basel to 15 September 1845. ↩
9. Richter and Kunzmann, Die Banknoten der Schweiz, introductory chapters, https://www.numis-online.ch/download/Richter-Die-Banknoten-der-Schweiz-opt.pdf. ↩
10. HLS, Peter Püntener, “Notenbanken”, http://www.hls-dhs-dss.ch/textes/d/D13746.php. ↩
11. Landmann, The Swiss Banking Law (1910), https://fraser.stlouisfed.org/title/swiss-banking-law-667/fulltext. ↩
12. HLS, Olivier Frédéric Dubuis, “Banknoten”, http://www.hls-dhs-dss.ch/textes/d/D13750.php. ↩
13. F. Ritzmann, “Schweizerische Notenbanken im 19. Jahrhundert und Free Banking: Diskussionsbeitrag zu M. Neldner”, Swiss Journal of Economics and Statistics (1996, issue II), https://www.sjes.ch/papers/1996-II-4.pdf. Ritzmann notes that the cantonal banks, as public-law institutions, dominated note circulation. ↩
14. HLS, Peter Püntener, “Notenbanken”, http://www.hls-dhs-dss.ch/textes/d/D13746.php. ↩
15. Landmann, The Swiss Banking Law (1910), section on the Concordat of 1876, https://fraser.stlouisfed.org/title/swiss-banking-law-667/fulltext. ↩
16. Swiss National Bank, “Chronicle of monetary events”, entry for 29 May 1874, https://www.snb.ch/en/the-snb/organisation/history/geld-und-waehrungspolitische-chronik; on the monopoly prohibition see Ritzmann, “Schweizerische Notenbanken im 19. Jahrhundert und Free Banking”, https://www.sjes.ch/papers/1996-II-4.pdf. ↩
17. Christian Bolliger, “Abstimmung vom 31.10.1880: Nein zum Banknotenmonopol des Bundes”, in Wolf Linder, Christian Bolliger and Yvan Rielle (eds.), Handbuch der eidgenössischen Volksabstimmungen 1848–2007 (2010), online at https://swissvotes.ch/attachments/40b49fb48ecfa4bab5f3e5a1cb608ca8024d6309dc270332cbaa1848dd437be9. ↩
18. Bolliger, “Abstimmung vom 31.10.1880”, https://swissvotes.ch/attachments/40b49fb48ecfa4bab5f3e5a1cb608ca8024d6309dc270332cbaa1848dd437be9. ↩
19. Swiss National Bank, “Chronicle of monetary events”, entry for 8 March 1881, https://www.snb.ch/en/the-snb/organisation/history/geld-und-waehrungspolitische-chronik. ↩
20. Landmann, The Swiss Banking Law (1910), section on the Federal Act of March 8, 1881, https://fraser.stlouisfed.org/title/swiss-banking-law-667/fulltext. ↩
21. HLS, Olivier Frédéric Dubuis, “Banknoten”, http://www.hls-dhs-dss.ch/textes/d/D13750.php; see also Trafina Privatbank, “Basler Banknoten”, https://www.trafina.ch/aktuell/basler-banknoten, on the uniform note format. ↩
22. Landmann, The Swiss Banking Law (1910), section on the Federal Act of March 8, 1881, https://fraser.stlouisfed.org/title/swiss-banking-law-667/fulltext, which states that control was vested in the Swiss fiscal department by decree of 21 December 1881 and that a special board of inspectors for banks of issue was created. ↩
23. Ritzmann, “Schweizerische Notenbanken im 19. Jahrhundert und Free Banking”, https://www.sjes.ch/papers/1996-II-4.pdf. ↩
24. Manfred Neldner, “Competition Necessarily Tends to Produce Excess: The Experience of Free Banking in Switzerland”, German Economic Review 4 (2003), no. 3, 389–408, DOI 10.1111/1468-0475.00086; bibliographic data from the Crossref record, https://api.crossref.org/works?query.bibliographic=Competition+Necessarily+Tends+to+Produce+Excess+Free+Banking+Switzerland+Neldner. ↩
25. HLS, Peter Püntener, “Notenbanken”, http://www.hls-dhs-dss.ch/textes/d/D13746.php. ↩
26. Swiss National Bank, “Chronicle of monetary events”, entry for 18 October 1891, https://www.snb.ch/en/the-snb/organisation/history/geld-und-waehrungspolitische-chronik. ↩
27. Wikipedia (en), “1897 Swiss referendums”, https://en.wikipedia.org/wiki/1897_Swiss_referendums. ↩
28. Swiss National Bank, “Chronicle of monetary events”, entry for 6 October 1905, https://www.snb.ch/en/the-snb/organisation/history/geld-und-waehrungspolitische-chronik; on the compromise character of the Act see Landmann, The Swiss Banking Law (1910), https://fraser.stlouisfed.org/title/swiss-banking-law-667/fulltext. ↩
29. Swiss National Bank, “Chronicle of monetary events”, entry for 20 June 1907, https://www.snb.ch/en/the-snb/organisation/history/geld-und-waehrungspolitische-chronik; on the interim notes see Swissinfo, “Die Geschichte der Schweizer Banknoten”, https://www.swissinfo.ch/ger/die-geschichte-der-schweizer-banknoten/42070664. ↩
30. HLS, Peter Püntener, “Notenbanken”, http://www.hls-dhs-dss.ch/textes/d/D13746.php. ↩
31. Swiss National Bank, “The history of the SNB”, https://www.snb.ch/en/the-snb/organisation/history. The page refers to the Zurich building as the Pfister building. ↩

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 September 2025.