The banking crisis and the call for supervision

A long prehistory of failed proposals

Switzerland entered the twentieth century without any federal supervision of its commercial banks. The Federal Constitution of 1874 gave the Confederation the power to legislate on banknotes, a power that led to the foundation of the Swiss National Bank in 1907, but no comparable power was used to regulate deposit-taking. Supervision of the cantonal banks lay with the cantons that owned them, while the commercial banks, the private bankers and the savings banks answered to their shareholders, partners and creditors under the general law of companies and contracts. The Swiss Bankers Association, founded in 1912, preferred it that way.

The first serious attempt to change this state of affairs came on the eve of the First World War. Sébastien Guex has shown that the federal government contemplated bank supervision at the beginning of 1914 and that the bankers, led by the National Bank and the Swiss Bankers Association, expressed misgivings verging on outright rejection because they feared that official oversight might weaken the practice of banking secrecy.¹ The link between supervision and secrecy, which would dominate the negotiations of the early 1930s, was therefore present from the very beginning. Every proposal to look into the books of the banks raised the question of who else might then see what those books contained.

During and after the war the proposals multiplied. Robert Vogler lists a sequence of drafts and opinions that never reached the statute book: a proposal by the Basel economist Julius Landmann in 1916, a further one by the jurist Eugen Huber in 1920, a draft by former Federal Councillor Arthur Hoffmann in 1923, a proposal by Federal Councillor Edmund Schulthess in 1925 and an opinion prepared in the Federal Department of Justice by Dr Haab in 1926. His summary is laconic: all these attempts came to nothing.² Landmann’s name deserves a moment’s attention, because the Basel professor was among the most respected economists of his generation and had worked closely with the federal authorities on monetary questions. That even a proposal of his standing could not overcome the resistance of the banks says a good deal about the balance of power between the federal state and the financial sector in the decade after 1914.

The wartime debates on taxation reinforced that balance. When Parliament discussed the federal war tax in 1915, a proposal by the deputy Ryser to oblige the banks to provide information to the tax authorities was defeated by 97 votes to 19. A postulate by the deputy Wirz along similar lines during the debate on the second war tax in 1920 was rejected by 62 votes to 22.³ Secrecy vis-à-vis the domestic tax authorities was thus defended in open parliamentary votes nearly two decades before Article 47 existed. It rested on custom, on contract and on the political majority of the bourgeois parties. It was precisely this informal foundation that the bankers would later want to reinforce with the weight of criminal law.

The crisis of 1931 to 1934

What the drafts of the 1910s and 1920s could not achieve, the world economic crisis accomplished within three years. Guex describes the period from the second half of 1931 as the worst banking crisis in Swiss history: of the eight big banks of the time, one failed, another survived only because of massive federal help, and four had to be substantially reorganised.⁴ The Historical Dictionary of Switzerland adds the figures behind this verdict. The combined balance sheets of the big banks roughly halved between 1930 and 1935, largely because of their extensive foreign business, and all of them except the two largest, the Swiss Bank Corporation and the Schweizerische Kreditanstalt, had to reorganise and reduce their share capital. Over the same period the share of the big banks in total Swiss banking assets fell from 41 per cent in 1929 to 21 per cent in 1935, while the share of the cantonal banks rose from 36 to 40 per cent.⁵ The depositors’ verdict on the crisis could hardly be clearer: they moved their savings from the internationally exposed big banks to the state-guaranteed institutions of their cantons.

The exposure that brought the big banks down lay mainly in Germany. During the 1920s Swiss banks had lent heavily to German industry, municipalities and banks, attracted by high interest rates and by the apparent stability of the Weimar Republic after the stabilisation of the mark. When the German banking crisis of July 1931 led to exchange controls and to the standstill agreements that froze foreign short-term credits, a large part of these assets became illiquid overnight. The following chapter on the Second World War returns to the German commitments of the Swiss banks, because the frozen credits of 1931 shaped their relations with the Reich for the next fifteen years. Zurich, as the seat of the Kreditanstalt, of the Bank Leu and of the Eidgenössische Bank, felt the shock with particular force.

The most spectacular case, however, was a Bernese institution. The Schweizerische Volksbank had been founded in 1869 by representatives of workers, civil servants and tradesmen as the Volksbank in Bern and had grown into a cooperative bank with branches throughout the country. By 1930 it was the second-largest bank in Switzerland, with total assets of 1,684 million francs and 1,639 employees. The depression brought it to the brink of collapse in the autumn of 1933, whereupon the Confederation took a stake of 100 million francs in its cooperative capital, a stake that subsequently had to be halved twice.⁶ Luzi C. Schutz, writing for Swissinfo, attributes the weakness of the bank to risky foreign investments, to loans to Swiss family firms in the embroidery, watch and hotel industries and to a large fraud involving a French milling company in 1929.⁷

The chronology of the rescue can be reconstructed with some precision. The run on the Volksbank had begun in September 1931, after Britain left the gold standard. By November of that year the balance sheet had shrunk by some 300 million francs. On 17 October 1933 the bank formally asked the Confederation for help. The rescue was announced on 18 November, and on 8 December 1933 the Federal Assembly unanimously authorised the capital injection by a federal decree. The first tranche of 30 million francs was paid on 19 December 1933 and the last on 23 February 1934, against the issue of 200,000 ordinary cooperative shares to the Confederation. The existing members saw the nominal value of their shares cut from 1,000 to 500 francs, their right of redemption was suspended, while the bank itself had to investigate the responsibility of its former management, reduce costs and close branches. When the Volksbank repurchased the federal shares in 1947 and 1948 for 51.4 million francs, the net cost to the Confederation, before dividends, came to 48.6 million francs.⁸ Vogler emphasises the political weight of this sum, which he calls indescribably high for the time and which was granted on the basis of an urgent federal decree.⁹

The rescue changed the political equation. A Confederation that had placed a quarter of its annual budget at the disposal of one bank could no longer tell Parliament that the banks were a private matter. The Social Democrats, who had long demanded public control of the banks, could now point to a concrete bill for the taxpayer. The argument that the state should see what it was paying for carried well beyond the left. The bankers, for their part, understood that some form of supervision had become unavoidable and turned their energy to shaping it. Guex quotes the conditions that they formulated as early as the summer of 1931, when the question of supervision was first raised again: supervision had to be mild and should not be exercised by a state administration, while it also had to be accompanied by arrangements designed to maintain banking secrecy.¹⁰

A second failure, this time in Geneva, fell in the middle of the legislative process. The Banque d’Escompte Suisse, or Schweizerische Diskontbank, had been created under that name in September 1931 when the Comptoir d’Escompte de Genève merged with the Union Financière de Genève. With total assets of some 470 million francs in 1930 it was considerably smaller than the Volksbank. It received extensive refinancing support from July 1931 onwards, coordinated between the Confederation, the canton of Geneva, the newly created Eidgenössische Darlehenskasse and a consortium of banks that included the Kreditanstalt and the Swiss Bank Corporation. Because the support proved insufficient, the Diskontbank closed its counters for good in April 1934.¹¹ It went into a composition liquidation, the liquidation concordataire, whose files later passed through the hands of the Federal Banking Commission and were studied by the Independent Commission of Experts for their evidence on securities business with Germany.¹²

Jan Baumann’s comparison of the two cases yields an insight that is easily overlooked. The Volksbank was saved at the end of 1933, while the drafting of the banking law was in full swing and federal help could be presented as a bridge to a new regulatory order. The Diskontbank was allowed to fail in April 1934, once the draft law was before Parliament and the political incentive to continue supporting a weak bank had diminished.¹³ The Historical Dictionary of Switzerland records the collapse of the Geneva bank in 1934 as one of the defining events of the crisis.¹⁴ For Geneva, whose banking history the companion volume to this book traces in detail, the failure marked the end of an ambitious attempt to build a large commercial bank on the shores of the lake. Thereafter the city’s financial identity became even more closely tied to its private banks.

The crisis also touched the Basler Handelsbank, whose name would soon become inseparable from the history of banking secrecy. The Basel bank was heavily committed in Germany and needed federal support before it was finally absorbed by the Swiss Bank Corporation in 1945.¹⁵ Before that, it was the scene of the affair that more than any other event set the agenda for Article 47.

Notes

1. Sébastien Guex, “The Origins of the Swiss Banking Secrecy Law and Its Repercussions for Swiss Federal Policy”, Business History Review 74 (2000), pp. 237–266, full text via the University of Lausanne repository, https://api.unil.ch/iris/server/api/core/bitstreams/48a786e1-2b45-4c01-b99c-bb69c0cac14f/content. Guex, professor at Lausanne, based his article on the archives of the Federal Department of Finance and of the Swiss Bankers Association. ↩
2. Robert U. Vogler, Das Schweizer Bankgeheimnis: Entstehung, Bedeutung, Mythos, Beiträge zur Finanzgeschichte, Heft 7 (Zurich: Verein für Finanzgeschichte Schweiz und Fürstentum Liechtenstein, 2005), p. 14 (“Alle diese Versuche verliefen im Sande”), https://www.finanzgeschichte.ch/Vogler%20Schweizer%20Bankgeheimnis.pdf. Vogler was for many years the historian of the Swiss Bank Corporation and later of UBS. ↩
3. Vogler, Das Schweizer Bankgeheimnis (2005), pp. 14–16, recording the votes on the Ryser proposal (19 to 97) and on the Wirz postulate (22 to 62). ↩
4. Guex, “Origins of the Swiss Banking Secrecy Law” (2000), p. 243. ↩
5. Martin Körner and Youssef Cassis, “Banken”, Historisches Lexikon der Schweiz (HLS), version of 17 August 2006, section on concentration processes in the twentieth century, https://hls-dhs-dss.ch/de/articles/014061/2006-08-17/. ↩
6. Jan-Henning Baumann, “Schweizerische Volksbank (SVB)”, HLS, https://hls-dhs-dss.ch/articles/041976. The Volksbank was taken over by CS Holding in 1993 after heavy losses in the real estate crisis of the early 1990s. ↩
7. Luzi C. Schutz, “Der Staat als ‘Bankier wider Willen’”, SWI swissinfo.ch, 17 April 2023, https://www.swissinfo.ch/ger/kultur/der-staat-als-bankier-wider-willen/48431754. ↩
8. Yale Program on Financial Stability, New Bagehot Project, “Switzerland: Schweizerische Volksbank Capital Injection, 1933”, https://newbagehot.yale.edu/docs/switzerland-schweizerische-volksbank-capital-injection-1933. The case study states that the 100 million francs corresponded to roughly a quarter of the federal budget of 1933. ↩
9. Vogler, Das Schweizer Bankgeheimnis (2005), pp. 25–26, where he describes the Volksbank crisis as the catalyst of the legislative consensus. ↩
10. Guex, “Origins of the Swiss Banking Secrecy Law” (2000), discussing the bankers’ position in 1931 and 1932 on the basis of the records of the Swiss Bankers Association and the Federal Department of Finance. ↩
11. Jan Baumann, Bundesinterventionen in der Bankenkrise 1931–1937: Eine vergleichende Studie am Beispiel der Schweizerischen Volksbank und der Schweizerischen Diskontbank (dissertation, University of Zurich, 2007), p. 13 note 3 (merger of September 1931) and p. 24 (“Im April 1934, als die Diskontbank ihre Schalter für immer schloss”), https://ypfsresourcelibrary.blob.core.windows.net/fcic/YPFS/20070185.pdf. ↩
12. Diplomatic Documents of Switzerland (Dodis), entry “Banque d’escompte suisse en liquidation concordataire”, https://dodis.ch/R8252, which records the merger of the Comptoir d’Escompte de Genève and the Union financière de Genève, the leading officers of the bank and the sources held on it. ↩
13. Baumann, Bundesinterventionen in der Bankenkrise (2007), arguing that the legislative process changed the political conditions for rescue and that by April 1934 the regulatory uncertainty had diminished. ↩
14. Körner and Cassis, “Banken”, HLS (2006), section on the twentieth century (“Die Banque d’Escompte Suisse in Genf brach 1934 zusammen”). ↩
15. Independent Commission of Experts Switzerland – Second World War (ICE/UEK), summary of volume 13: Marc Perrenoud, Rodrigo López, Florian Adank, Jan Baumann, Alain Cortat and Suzanne Peters, La place financière et les banques suisses à l’époque du national-socialisme: Les relations des grandes banques avec l’Allemagne (1931–1946), https://www.uek.ch/de/schlussbericht/Publikationen/Zusammenfassungenpdf/13d.pdf, noting that short-term German business was of essential importance for the survival of the Basler Handelsbank and that the Volksbank required a second restructuring after the federal injection of 100 million francs. ↩

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.