Creditor and refuge: the interwar years

German money in Zurich, Zurich money in Germany

The First World War interrupted the free movement of capital between the two countries without breaking the economic bond. Switzerland had to negotiate with both belligerent blocs for coal, food and raw materials, and between 1916 and 1918 it concluded a series of economic agreements with Germany under which Swiss deliveries were exchanged for German coal and iron. By 1917, however, the Allies had become the more important suppliers, since Swiss imports from the Allied states amounted to 903 million francs against 504 million from the Central Powers.¹ The war left Switzerland with a hard currency and an intact banking system, while Germany emerged defeated, burdened with reparations and heading towards the hyperinflation of 1923.

The consequences for Zurich were described in Chapter F.I. German savers who had the means moved money into Swiss francs to protect it against inflation and, after the stabilisation of 1924, against political uncertainty and rising taxes. At the same time the Swiss banks, above all the big banks with their head offices in Zurich and Basel, lent heavily to German industry, German banks and German municipalities, since German interest rates were far higher than Swiss rates after the Dawes Plan of 1924 had reopened Germany to foreign credit. Much of this lending was financed with short-term deposits, some of which came from Germany itself. German money thus travelled to Zurich as flight capital and returned to Germany as Swiss credit, a cycle that earned the banks a comfortable interest margin for as long as confidence lasted.

The trade treaties of the period show how closely the two economies remained connected. The commercial agreement of July 1926 granted Germany tariff concessions and liberalised the processing trade (Veredelungsverkehr), in which goods crossed the border for finishing and returned. In 1932 two further agreements attempted to address the growing imbalance of trade. By 1938 and 1939, imports from Germany accounted for more than 23 per cent of total Swiss imports.² No other country came close to this share. For the Zurich banks, the German business was therefore at the same time the most profitable and the most exposed part of their foreign activity.

The standstill of 1931 and German exchange control

The German banking crisis of July 1931 turned the Zurich banks’ largest market into their largest problem. After the failure of the Danatbank the German government closed the banks and introduced exchange controls. The short-term credits of foreign banks to German debtors were frozen under the standstill agreement (Stillhalteabkommen) negotiated in Basel in August 1931, which was renewed year after year. Switzerland, whose banks held a large share of Germany’s short-term foreign debt, continued to renew its agreement until 1944, long after the American and British creditors had ended theirs at the outbreak of war.³ The frozen claims could be used only within Germany or sold at a heavy discount. For the Eidgenössische Bank, the Basler Handelsbank and Bank Leu, which had concentrated their foreign business on Germany, the losses proved fatal or nearly so, while the Kreditanstalt and the other surviving big banks spent the rest of the decade writing down their German assets.

The German state’s response to the flight of its own citizens’ money was increasingly repressive. The emergency decree of December 1931 introduced the Reich flight tax (Reichsflucht­steuer), a levy of a quarter of the assets of taxpayers who gave up their German residence. Although the Brüning government had designed the measure against capital flight, the National Socialists later turned it into an instrument for expropriating Jewish emigrants.⁴ After 1933 the regime tightened exchange control step by step. The Law against Treason to the German Economy (Gesetz gegen Verrat der Deutschen Volkswirtschaft) of 12 June 1933 required Germans to declare their foreign assets and threatened severe penalties for those who did not.⁵ The Law against Economic Sabotage (Gesetz gegen Wirtschaftssabotage) of 1 December 1936 went further and made the concealment of assets abroad a capital offence.⁶

Banking secrecy and the German question

These German laws form the background to the most enduring legend of the Zurich financial centre. According to that legend, the criminal protection of banking secrecy in Article 47 of the Federal Banking Act of 8 November 1934 was introduced to protect the accounts of German Jews and other persecuted persons against the agents of the Gestapo, who were said to be trying to identify German-owned assets in Swiss banks. Chapter F.II examines this account and shows that it was developed mainly after the Second World War and that the archival record points elsewhere. The decisive impulses for Article 47 were the banking crisis, the French affair of 1932, in which the Paris police had seized client lists of the Basler Handelsbank, and the wish of the banks to protect their foreign clients in general. German espionage against Swiss accounts, which did take place in the 1930s, gave the new provision a welcome justification. Yet the Banking Act protected every client equally: the persecuted refugee, the Jewish family trying to save part of its wealth, the German industrialist evading exchange control and, later, the officials of the regime itself.

The German question was therefore present at the birth of Swiss banking secrecy in a double sense. German exchange control law made the secrecy of Swiss banks valuable to German clients, and German state pressure, real or perceived, gave that secrecy its moral narrative. The combination would recur seventy years later, with different actors and reversed roles. In the 2000s it was the democratic German state that sought access to Swiss accounts, and Swiss defenders of secrecy still invoked the 1930s to explain why such access should be refused. German critics, for their part, pointed out that the same secrecy had allowed Swiss banks to profit from the assets of the regime and its victims alike.

Notes

1. HLS, “Deutschland” (cited above), section on the First World War. ↩
2. HLS, “Deutschland” (cited above), section on the period 1918 to 1939. ↩
3. Wikipedia, “Stillhalteabkommen” (German edition), https://de.wikipedia.org/wiki/Stillhalteabkommen, which states that about six billion Reichsmarks of payment obligations were suspended from 1 September 1931, that Switzerland maintained an agreement until May 1944 while the American and British creditors ended theirs on 3 September 1939, and that the remaining standstill credits were settled under the London Debt Agreement of 1953. Chapter F.I gives further detail. ↩
4. Wikipedia, “Reichsfluchtsteuer” (German edition), https://de.wikipedia.org/wiki/Reichsfluchtsteuer, which states that the tax was introduced on 8 December 1931 by the Vierte Verordnung des Reichspräsidenten zur Sicherung von Wirtschaft und Finanzen und zum Schutze des inneren Friedens at a rate of 25 per cent of total assets to curb capital flight, and that it was used from 1933 to plunder Jewish and politically persecuted emigrants. ↩
5. A letter of Deutsche Bank of July 1933 to a private client, preserved in the Landesmuseum collection on museum-digital, warns that her holding of foreign securities possibly violated the Gesetz gegen Verrat der Deutschen Volkswirtschaft and that failure to report them to the tax authorities was subject to the severest punishments: museum-digital:rheinland-pfalz, object 100464, https://rlp.museum-digital.de/pdf/object/100464.pdf. ↩
6. The date and the reference RGBl. I p. 999 are confirmed by the list of Nazi statutes repealed by the Allied Control Council, Amtsblatt des Kontrollrats in Deutschland 1947, p. 285, https://www.gvoon.de/art/dokumente/1947/amtsblatt-konrollrat-deutschland-1947/pdf/amtsblatt-kontrollrat-deutschland-1947-seite_285.01.pdf. The death penalty for the concealment of assets abroad follows from § 1 of the statute. ↩

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.