Comparisons: Leu & Co. and the German public banks

Leu & Co. and the Zürcher Kantonalbank

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 depositors and invested them, largely abroad, in loans to foreign states and in securities, for the benefit of the patrician families who dominated the republic (see Chapter C.II). The Zürcher Kantonalbank of 1870 collected the savings of the whole population of the canton and lent them back as mortgages to the farmers and craftsmen of the same canton. Leu was an instrument of capital export and of the financial management of an oligarchy. The Kantonalbank was an instrument of domestic credit supply and of the political programme of a democratic majority.

The contrast illuminates the change in the concept of the state between the eighteenth and the nineteenth century. The Zinskommission belonged to the Ancien Régime, in which the state was the property and the business of a small circle of families. The Kantonalbank belonged to a democratic state, in which the people were sovereign and the bank was their instrument. Leu evolved into a private bank, was taken over by the Schweizerische Kreditanstalt at the beginning of the 1990s and later disappeared as a brand within Credit Suisse in 2012, sharing the fate of its acquirer (see Chapter C.II).¹ The Kantonalbank grew into one of the largest banks in the country. The political foundation of the Kantonalbank in the sovereignty of the people proved more durable than the patrician foundation of Leu.

The German Landesbanken and Sparkassen

A comparison with Germany suggests itself to any reader familiar with the German three-pillar system of private banks, co-operative banks and public-law savings banks. The German Sparkassen and the Landesbanken, their regional central institutions, were public-law institutions backed by two forms of public support. Anstaltslast obliged the public owner to keep the institution in a position to operate. Gewährträgerhaftung made the owner liable to creditors without limit if the institution’s assets were insufficient. The latter corresponded closely to the Zurich state guarantee of 1869.

In December 1999 the Bundesverband deutscher Banken filed a complaint with the European Commission, arguing that these guarantees constituted prohibited state aid under the European treaties. On 17 July 2001 the Commission and the Federal Republic reached an agreement, known as the Brussels understanding, under which Gewährträgerhaftung was abolished and Anstaltslast was replaced by normal ownership relations according to market principles. Both became ineffective after 18 July 2005, subject to grandfathering. Liabilities incurred before 18 July 2001 retained full protection, while those incurred between 19 July 2001 and 18 July 2005 remained protected only if they matured by the end of 2015.² Several Landesbanken, having lost the funding advantage of the guarantee and having invested heavily in structured credit before 2007, required public rescues during the financial crisis.³

The Swiss cantonal banks escaped that development because Switzerland is not a member of the European Union or of the European Economic Area. Zuberbühler had already pointed out in the mid-2000s that accession to the EU or the EEA would expose the state guarantees to European state aid rules, citing the German precedent.⁴ Kunz made the same point in 2018 with reference to a possible institutional framework agreement.⁵ The survival of the Zurich state guarantee is thus, in part, a consequence of Switzerland’s position outside the European single market in financial services. The comparison also reveals a structural difference. The Zürcher Kantonalbank combines in one institution the retail savings business of a German Sparkasse and the wholesale, trading and capital market business of a Landesbank, under the direct control of a single cantonal owner. That concentration of functions explains both its size and its designation as systemically important.

A glance at Geneva

Geneva, the subject of the companion volume, offers a contrasting case. The HLS, which records a state mortgage office in Geneva as early as 1847, names Geneva, alongside Bern, among the cantonal banks struck hardest by the property crisis, dating the Genevan difficulties to 2000.⁶ Unlike the Zürcher Kantonalbank, the Banque cantonale de Genève operates today with only a limited guarantee from its canton.⁷ The difference reflects the two cities’ banking histories. In Geneva, where private banking by partnerships of old families remained the dominant model, the cantonal bank played a subordinate role. In Zurich, the democratic movement created a state bank that grew to rival the private institutions in size, so that the city’s financial centre developed as a dual structure of large private banks and a powerful public bank side by side.

Notes

1. Limmattaler Zeitung, “Vom Säumärt zum Paradeplatz und zurück” (cited above), recording the takeover of Bank Leu and the Schweizerische Volksbank by the SKA in the early 1990s. The later history of Leu within Credit Suisse is traced in Chapter C.II. ↩
2. Wikipedia (German), “Brüsseler Konkordanz”, https://de.wikipedia.org/wiki/Br%C3%BCsseler_Konkordanz. ↩
3. Wikipedia (English), “WestLB”, https://en.wikipedia.org/wiki/WestLB, on WestLB’s exposure to structured credit, the guarantee of €5 billion provided by North Rhine-Westphalia and local banks in February 2008 and the transfer of its residual operations to Portigon Financial Services AG as of 30 June 2012. Wikipedia (English), “BayernLB”, https://en.wikipedia.org/wiki/BayernLB, on its losses on structured securities and the capital injection of €10 billion and guarantees of €4.8 billion by the Free State of Bavaria in 2008. ↩
4. Zuberbühler, “Die Kantonalbanken im Bankengesetz” (cited above), section on future regulatory risks. ↩
5. Kunz, “Heikle Garantien für Kantonalbanken” (cited above). ↩
6. Froidevaux, “Banche cantonali”, DSS (cited above), sections on the first wave and on the 1990s. ↩
7. Wikipedia (German), “Kantonalbank”, section on state guarantees (cited above). Kunz also lists Geneva among the cantons that abolished or limited their guarantee: Kunz, “Heikle Garantien für Kantonalbanken” (cited above). ↩

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.