The banking crisis of the 1930s

1931 and the German standstill

The world economic crisis reached the European banking systems in the spring of 1931. In May the Austrian Creditanstalt, the largest bank of the former Habsburg monarchy, collapsed. In July the German banking system followed, when the Danatbank failed and the German government closed the banks and introduced exchange controls. In September the United Kingdom left the gold standard. For the Swiss banks, the German crisis was the decisive blow. Hotori, Wendschlag and Giddey summarise its effect: the introduction of exchange controls and the freezing of Swiss assets in Germany and central Europe created serious problems for the financial institutions that were heavily involved in these countries. As they note, Swiss banks held a large share of German external debt, so that the freezing of those assets caused a considerable devaluation of the funds invested.¹

The German short-term debts to foreign banks were frozen under the first standstill agreement (Stillhalteabkommen), negotiated at a conference in Basel that opened on 14 August 1931 and signed on 19 August 1931. It suspended repayment of about six billion Reichsmarks of short-term credits from 1 September 1931, at first for six months. The creditor countries included the United States, Belgium, Denmark, Britain, France, Italy, the Netherlands, Norway, Sweden, Switzerland and Czechoslovakia. The agreement was renewed repeatedly as the German Credit Agreement from 1932 onwards. While the American and British banking committees terminated their agreements on 3 September 1939, Switzerland continued to renew its agreement until May 1944, when the last renewal was signed in Zurich. The remaining claims were finally settled under the London Debt Agreement of 1953.² For the Swiss creditor banks, the standstill meant that a large part of their assets could neither be collected nor sold except at a heavy discount. In 1934 Switzerland and Germany concluded a clearing agreement that channelled payments for goods and services through state-controlled accounts. The functioning of the clearing system and its significance in the Second World War are described in chapter F.III.³

The immediate consequence of the German crisis in Switzerland was a wave of withdrawals. Foreign depositors, fearing for the solvency of banks known to be exposed to Germany, withdrew their funds, and Swiss savers followed. The Schweizerische Volksbank, the second-largest bank in the country, suffered a run in September 1931 after rumours about its situation, which caused its balance sheet to contract by 300 million francs.⁴ Paradoxically, the Swiss franc itself became a refuge. As sterling and later the dollar left gold, capital from all over Europe sought safety in the currency of a country that still maintained convertibility. Swiss gold reserves grew, while the banks that had lent abroad were weakened. The Historical Dictionary’s article on the 1936 devaluation notes that in the early 1930s the depression drove foreign capital into Switzerland and made the franc a safe-haven currency, but that the situation reversed from 1933.⁵ The financial centre and the currency thus experienced the crisis in opposite ways. The franc was strong precisely because the world was fleeing into it, while the banks were weak because they had invested in the countries from which that money was fleeing.

The losses of the big banks

In the following years the Swiss banking system went through the most severe crisis in its history before 2008. Of the eight big banks that existed around 1930, only a minority came through without either failure, state aid or a radical reorganisation. Berbenni summarises the outcome: out of the eight major banks, one failed, another survived only thanks to state intervention and four had to be radically reorganised.⁶ Jan Baumann, in his Zurich dissertation on federal interventions in the banking crisis, cites calculations by Paul Rossy, then vice-president of the Federal Banking Commission, according to which the shareholders and creditors of six big banks bore losses of 637 million francs, against combined balance sheets of 5,445 million francs in 1930.⁷ A loss of almost twelve per cent of the balance sheet total would have wiped out the capital of any bank several times over, had it not been spread over several years and absorbed partly by hidden reserves.

The bank that failed was the Schweizerische Diskontbank (Banque d’Escompte Suisse) in Geneva. With a balance sheet of 470 million francs in 1930, it had been heavily invested in countries with transfer restrictions. The Confederation supported it through the newly created Eidgenössische Darlehenskasse, a federal lending institution set up in 1932 to provide credit against assets that the national bank could not accept as collateral. Because the support was not sustained, the Diskontbank collapsed in April 1934.⁸ Its failure was the largest Swiss bank collapse of the interwar period and a blow to the Geneva financial centre, which had lost its only big bank.

The Zurich banks survived, but several of them only at great cost. The Schweizerische Bankgesellschaft had to reduce its share capital twice, as the summary volume of the Independent Commission of Experts on the relations of the big banks with Germany records.⁹ Bank Leu, the oldest of the Zurich big banks, underwent a major reorganisation in 1937.¹⁰ The Eidgenössische Bank never recovered from its German losses. In 1945 most of its assets and liabilities were taken over by the Schweizerische Bankgesellschaft. The Basler Handelsbank reduced its capital in 1932, 1934 and 1937, while its balance sheet shrank from 666 million francs in 1928 to 286 million in 1935. When German payments ceased entirely at the end of the war, the Federal Banking Commission granted it a moratorium on 1 August 1945. The Schweizerischer Bankverein then took over its business, keeping the old company alive as a vehicle for the liquidation of blocked assets until 1989.¹¹

The concentration of the Swiss banking system that followed was a direct long-term consequence of the German exposure of the 1920s. Of the eight big banks of 1930, only five remained after 1945: the Schweizerische Kreditanstalt, the Schweizerischer Bankverein, the Schweizerische Bankgesellschaft, the Schweizerische Volksbank and Bank Leu. The structure of the Swiss big-bank sector that lasted until the mergers of the 1990s, described in Part G of this book, was formed in the aftermath of the crisis of 1931.

The rescue of the Schweizerische Volksbank, 1933

The Schweizerische Volksbank, headquartered in Bern, was an unusual big bank. It was organised as a cooperative with a broad membership among small savers, artisans and farmers, which had grown in the 1920s into the second-largest bank in the country by balance sheet, which reached a peak of 1.7 billion francs. By late 1931 it had some 600,000 savings accounts and 100,000 cooperative members. Like the commercial banks, it had invested heavily abroad. After the standstill it lost 70.7 million francs in German balances, while its non-performing assets rose from 30 million francs in 1928 to around 100 million francs by 1933. In September 1933 Alfred Hirs, whom the national bank had placed on the Volksbank’s management board in 1931, estimated its unrealised losses at 100 million francs, two thirds of which stemmed from foreign assets.¹²

On 17 October 1933 the Volksbank formally requested state aid. After the Federal Council had submitted a proposal for a capital injection to Parliament on 29 November, the Federal Assembly authorised the participation of the Confederation by a federal decree of 8 December 1933. The Confederation subscribed 100 million francs of new cooperative capital, paid in three tranches between 19 December 1933 and 23 February 1934, and received 200,000 shares with a nominal value of 500 francs. The existing members bore part of the loss, since the nominal value of their shares was reduced by half, from 1,000 to 500 francs, with a further reduction following in January 1937. The Federal Council appointed the former Federal Councillor Robert Haab as president of the board and nominated ten of the twenty-one directors. Civil and criminal proceedings were brought against former managers and directors. Between 1947 and 1948 the Volksbank repurchased the federal stake, and Makhija calculates the net cost of the programme to the Confederation at 48.6 million francs, excluding dividends.¹³

The sum of 100 million francs corresponded to about a quarter of the federal budget of 1933. Baumann points out that it was substantial even when set against the total assets and securities of the Confederation, which amounted to about 430 million francs, and that it was the first direct equity participation of the Swiss state in a private credit institution.¹⁴ The rescue was politically controversial precisely because it was so large, and because it used taxpayers’ money to save a bank whose losses resulted from foreign lending. Hotori, Wendschlag and Giddey argue that the crisis undermined the resistance of the bankers to regulation and made possible the Banking Act of 1934, the first federal banking law.¹⁵ That statute, its Article 47 on banking secrecy and the Federal Banking Commission that it created are the subject of chapter F.II. For the present chapter, it suffices to note that the path from the frozen German credits of 1931 to the Banking Act of 1934 was direct, and that the national bank acted throughout as the coordinator between the federal authorities and the banks.

The episode also set a pattern that would recur in 2008 and 2023. When a large Swiss bank got into difficulties because of foreign risks, the Confederation and the national bank intervened, the shareholders were diluted but not wiped out, the state took governance rights and new legislation followed. The instruments have changed since 1933, but the sequence of liquidity support, capital injection and legislative reform would have been familiar to the Federal Councillors of that year.

Notes

1. Eiichi Hotori, Mikael Wendschlag and Thibaud Giddey, “Switzerland: Formalizing Banking Supervision in the Aftermath of a Crisis, Better Late Than Never”, in: Formalization of Banking Supervision (Palgrave Macmillan, 2022), https://link.springer.com/chapter/10.1007/978-981-16-6783-1_6. ↩
2. Wikipedia, “Stillhalteabkommen”, https://de.wikipedia.org/wiki/Stillhalteabkommen, on the Basel conference, the amount of about 6 billion Reichsmarks, the creditor countries, the renewals and the Swiss renewals until 1944. ↩
3. Stefan Frech, Clearing. Der Zahlungsverkehr der Schweiz mit den Achsenmächten, Veröffentlichungen der UEK, vol. 3, summary, https://www.uek.ch/de/schlussbericht/Publikationen/Zusammenfassungenpdf/03d.pdf, on the clearing agreement concluded with Germany in 1934. ↩
4. Anmol Makhija, “Switzerland: Schweizerische Volksbank Capital Injection, 1933”, Journal of Financial Crises 6 (2024), no. 3, pp. 471–486, https://elischolar.library.yale.edu/cgi/viewcontent.cgi?article=1589&context=journal-of-financial-crises. ↩
5. Mauro Cerutti, “Abwertung 1936”, in: HLS, https://hls-dhs-dss.ch/de/articles/045078/. ↩
6. Berbenni, “Italian Offshore Wealth in Switzerland before and after WWII”, INET working paper, https://www.ineteconomics.org/uploads/papers/Berbenni-Pisa-Paper.pdf; the Historical Dictionary’s article “Finanzplatz” (https://hls-dhs-dss.ch/textes/d/D45549.php) similarly states that one of the eight big banks failed and five others survived only through profound restructuring, sometimes with massive state aid. ↩
7. Jan Baumann, Bundesinterventionen in der Bankenkrise 1931–1937. Eine vergleichende Studie am Beispiel der Schweizerischen Volksbank und der Schweizerischen Diskontbank, doctoral thesis, University of Zurich, 2007, introductory chapter, https://ypfsresourcelibrary.blob.core.windows.net/fcic/YPFS/20070185.pdf. ↩
8. Baumann, Bundesinterventionen in der Bankenkrise 1931–1937, 2007, https://ypfsresourcelibrary.blob.core.windows.net/fcic/YPFS/20070185.pdf, on the balance sheet of the Diskontbank in 1930, the support through the Eidgenössische Darlehenskasse and the collapse of April 1934. ↩
9. 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), Veröffentlichungen der UEK, vol. 13 (2002), German summary, https://www.uek.ch/de/schlussbericht/Publikationen/Zusammenfassungenpdf/13d.pdf. The summary lists the banks in difficulty, among them the Banque d’Escompte Suisse, the Schweizerische Bankgesellschaft and the Schweizerische Volksbank, and names Bank Leu, the Basler Handelsbank and the Eidgenössische Bank among the institutions most affected. ↩
10. Jan-Henning Baumann, “Bank Leu”, in: HLS, version of 3 November 2022, https://hls-dhs-dss.ch/de/articles/041661/2022-11-03/, which records the reorganisation of 1937 and the later acquisition by CS Holding in 1990. ↩
11. Degen, “Basler Handelsbank” (HLS), https://hls-dhs-dss.ch/de/articles/044716/2002-05-01/, on the capital reductions of 1932, 1934 and 1937, the balance sheet of 1935, the moratorium of 1 August 1945 and the takeover by the Schweizerischer Bankverein. ↩
12. Makhija, “Switzerland: Schweizerische Volksbank Capital Injection, 1933”, Journal of Financial Crises 6 (2024), pp. 471–486, https://elischolar.library.yale.edu/cgi/viewcontent.cgi?article=1589&context=journal-of-financial-crises, on the size, membership, foreign losses and non-performing assets of the bank and on the role of Alfred Hirs. ↩
13. Makhija, “Switzerland: Schweizerische Volksbank Capital Injection, 1933”, Journal of Financial Crises 6 (2024), https://elischolar.library.yale.edu/cgi/viewcontent.cgi?article=1589&context=journal-of-financial-crises, on the timeline of the rescue, the three tranches, the reduction of the members’ shares, the governance measures and the repurchase of 1947–1948. ↩
14. Baumann, Bundesinterventionen in der Bankenkrise 1931–1937, 2007, https://ypfsresourcelibrary.blob.core.windows.net/fcic/YPFS/20070185.pdf, also on the mediating role of the national bank between the federal authorities and the banks. ↩
15. Hotori, Wendschlag and Giddey, “Switzerland: Formalizing Banking Supervision in the Aftermath of a Crisis”, 2022, https://link.springer.com/chapter/10.1007/978-981-16-6783-1_6. ↩

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 October 2026.