Governance, the state and the democratic critique

The personal union of politics and business

The early Kreditanstalt was governed in a manner that would be unthinkable under modern banking law. Its president was at the same time the leading politician of the canton, a leading member of the federal parliament and the president of the largest client of the bank. The historical encyclopaedia observes that Escher’s concentration of political and economic power, together with his defence of the interests of business and of the educated elite, attracted criticism at an early stage.¹ The same individuals sat on the boards of the railway, the bank and the insurance company and in the parliament that granted railway concessions and approved company statutes. In a small canton with a small elite, such personal unions were partly unavoidable. They were also a deliberate method of government, by which the liberal majority coordinated its projects without an extensive state bureaucracy.

The relationship between the bank and the state was accordingly close but informal. The Kreditanstalt was a private company that received no public guarantee. Yet it operated in an environment in which the cantonal government, the railway companies and the bank were led by the same people and pursued the same programme of economic modernisation. A political scientist would call this an elite network, whereas the Zurich democrats of the 1860s called it the “System Escher”. The German-language encyclopaedic literature describes how the democratic movement demanded a greater say for the people in political questions and how the sworn circle of politicians around Escher, the “System Escher”, became the declared enemy of the democrats.²

The democratic movement and its counter-model

The democratic movement in the canton of Zurich grew into a mass phenomenon by 1867. It united intellectuals, workers, farmers, artisans and small entrepreneurs of town and country against what they regarded as a narrow aristocracy of wealth.³ From 1866 the jurist Friedrich Locher attacked abuses in administration and justice in anonymous pamphlets, which contributed greatly to the loss of prestige of the liberal elite. The socialist Karl Bürkli, a former tanner and follower of Fourier, led the left wing of the movement and advocated cooperative socialism and direct democracy. Low electoral participation had sustained the liberal regime: between 1848 and 1863, according to the Sozialarchiv’s account, turnout remained below 20 per cent, with 70 to 90 per cent of the votes cast going to liberal candidates. On 18 April 1869, a turnout of about 90 per cent produced a majority of 61 per cent for the new democratic constitution of the canton.

The economic programme of the democrats aimed directly at the model that the Kreditanstalt embodied. Bürkli argued that the state should manage credit in the same way that it managed roads and the currency, presenting a cantonal bank as the counterweight to Escher’s financial dominance.⁴ After the new constitution of 1869 had required the canton to establish a state bank, the Zürcher Kantonalbank opened in 1870 with the mandate of meeting the credit needs of trade and agriculture. Its history is told in Chapter D.V. Across Switzerland, as Youssef Cassis notes, the democratic movement promoted cantonal banks as alternatives to the large concentrations of capital. The 1860s and 1870s accordingly saw a second wave of cantonal bank foundations together with numerous local credit institutions under the motto of the “people’s bank against the gentlemen’s bank”.⁵

The democratic critique shaped the Swiss banking system in a lasting way. It produced a dual structure in which private joint-stock banks of the universal type coexisted with public cantonal banks that enjoyed state guarantees and pursued a regional mandate. This duality, which remains a defining feature of Swiss banking today, can be traced directly to the conflict between the Kreditanstalt and its democratic opponents in the 1860s. The democratic movement left the Kreditanstalt intact. It created an alternative institution for those whom the big bank did not serve and subjected the bank and its leaders to a public scrutiny that had been absent in the years of unchallenged liberal rule. The fall of the “System Escher” in 1868 and 1869 ended Escher’s dominance in cantonal politics, although he remained president of the bank and of the Nordostbahn and retained his seat in the National Council until his death.⁶

A lawyer’s reading

From the standpoint of the modern law of banks, the governance of the early Kreditanstalt raises three issues that later legislation addressed. The first is the concentration of credit exposures to a single client. The Nordostbahn, which contributed a quarter of the bank’s first-year revenues and whose president was also the bank’s president, was a related party in the modern sense, and exposures of this kind are today subject to strict limits under the capital adequacy and risk diversification rules. The second is the combination of political office and bank directorship. Swiss law has never prohibited members of parliament from sitting on bank boards, but the conflicts that arise from the combination have become a recurrent subject of public debate and of corporate governance codes. The third is the absence of any public supervision. Before the Federal Banking Act of 1934, a joint-stock bank was supervised only by its shareholders, its auditors and the market, since the only specific regulation concerned the issue of banknotes. The history of the Kreditanstalt thus illustrates why the modern law of banks developed as it did, even though its founders cannot be judged by rules that did not exist in their time.

Notes

1. HLS, “Escher, Alfred” (cited above), section on opposition: the concentration of political and economic power and the defence of business and elite interests generated early criticism; after 1860 a democratic movement of the disadvantaged classes challenged Escher’s “system” of economic liberalism and ended his dominance in 1868. ↩
2. Wikipedia (German), “Alfred Escher” (cited above): “Der eingeschworene Politikerkreis um Alfred Escher – das «System Escher» – wurde erklärtes Feindbild der Demokraten.” ↩
3. Schweizerisches Sozialarchiv, “Vor 150 Jahren: Die Demokratische Bewegung pflügt den Kanton Zürich um”, 24 February 2019, https://www.sozialarchiv.ch/2019/02/24/vor-150-jahren-die-demokratische-bewegung-pfluegt-den-kanton-zuerich-um/. The article describes the social composition of the movement, Locher’s pamphlets from 1866, Bürkli’s role, the vote of 18 April 1869 and the creation of the cantonal bank in 1870. ↩
4. Limmattaler Zeitung, “Vom Säumärt zum Paradeplatz und zurück” (cited above), on Bürkli’s argument and the foundation of the ZKB as a counterweight to the Kreditanstalt, to meet “gewerbliche und landwirtschaftliche Kreditbedürfnisse”. ↩
5. HLS, Cassis, “Banken” (cited above), section “Das Bankensystem nach 1850”, on the second wave of cantonal banks, the ZKB as an example that rapidly became one of the strongest banks in Switzerland, and the local institutions founded between 1860 and 1880 under the slogan “Volksbank gegen Herrenbank”. ↩
6. HLS, “Escher, Alfred” (cited above), with Escher’s membership of the National Council from 1848 until his death and the end of his dominance in 1868. ↩

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.