The Euromarkets, fiduciary deposits and the Swiss franc foreign bond

The Eurodollar market and the Swiss

The Euromarkets, whose growth dominated international finance from the late 1950s onwards, were markets in deposits and loans denominated in a currency other than that of the country in which the bank was located. The most important of them was the market in dollars held with banks in London. Its origins have been the subject of several legends. One widely repeated account traces the term “Eurodollar” to the telex code of the Soviet-owned Banque Commerciale pour l’Europe du Nord in Paris, which held dollars for communist states that feared American asset freezes. Another points to dollar deposits of the Soviet Union with the Moscow Narodny Bank in London.¹ Catherine Schenk has shown on the basis of Bank of England records that the practice began earlier and in a more prosaic way. In mid-1955, at a time of tight monetary conditions in Britain, the Midland Bank attracted some 49 million dollars in thirty-day deposits by offering interest above the ceiling that the Federal Reserve’s Regulation Q imposed on American banks, before swapping the dollars into sterling. The Bank of England, after initial hesitation, decided to raise no objection to banks accepting dollar deposits from non-residents.²

The market grew rapidly because it offered what the domestic markets of the major countries did not: freedom from interest-rate ceilings, reserve requirements and, for many depositors, the scrutiny of their own authorities. Swiss banks became major participants from the start, although for reasons peculiar to Switzerland they often did so from outside the Swiss balance sheet. The Swiss National Bank’s efforts to keep foreign money out, described in section II, meant that interest-bearing foreign deposits in Switzerland were unwelcome or unprofitable. The withholding tax made Swiss-source interest unattractive to foreign clients. A Swiss bank that wanted to offer its foreign clients a money-market return therefore had every reason to place their money abroad, preferably in London or later in Luxembourg, where Swiss banks built subsidiaries and branches for precisely that purpose. Beda Angehrn, writing in 1980 in Schmollers Jahrbuch, analysed these links in detail and concluded that the Swiss balance of payments and the exchange rate of the franc were substantially influenced by the Swiss banks’ involvement in the Euromarket, with consequences for Swiss interest rates and for the SNB’s control of the money supply.³

The fiduciary deposit

The characteristic Swiss instrument of this connection was the fiduciary deposit, known in German as the Treuhandanlage. Its structure is simple. A client, typically resident abroad, instructs a Swiss bank to place a sum in the bank’s own name but for the client’s account and at the client’s risk with a foreign bank, usually for a fixed term of one to twelve months. The Swiss bank acts as agent. Since the deposit does not appear on its balance sheet, the client bears the credit risk of the foreign bank. Niels Johannesen, in an empirical study of Swiss bank deposits, describes the mechanism concisely: a foreign investor entrusts funds to a Swiss bank in its capacity as fiduciary agent, whereupon the Swiss bank deposits them with a non-Swiss bank on behalf of the investor. Because the interest is earned abroad, it is treated as foreign-source income and is not subject to the Swiss withholding tax of 35 per cent.⁴ For the client the fiduciary deposit combined three advantages: a Euromarket rate of interest, the absence of Swiss withholding tax and the confidentiality of a Swiss banking relationship, since the foreign bank knew only the Swiss bank as its counterparty.

The volumes were very large. The Swiss National Bank’s monthly bulletin for mid-1983 reported that fiduciary assets placed abroad by Swiss banks had declined in the first quarter of that year by 4.9 billion francs to 179.9 billion francs, while fiduciary liabilities towards foreign clients stood at 157.3 billion francs. The bank attributed part of the decline to a contraction of fiduciary placements on the Euromarket by Swiss residents.⁵ To put the figure in context: at that date the fiduciary placements of Swiss banks alone were several times the size of the Swiss gross domestic product. Two decades later the pattern persisted. Johannesen reports, on the basis of SNB statistics, that about 90 per cent of foreign-owned deposits in Swiss banks were held as fiduciary deposits, with fiduciary deposits of some 291 billion francs in 2005 against only 19 billion francs of ordinary foreign deposits.⁶

The fiduciary deposit illustrates a feature of Swiss financial law that practitioners still encounter. The characterisation of the bank as agent (Beauftragter) under the Code of Obligations, and not as borrower, determines the tax and regulatory treatment. The same distinction governs the question whether the client can claim against the Swiss bank if the foreign depository bank fails, a question that became practical in the financial crisis of 2008. It also explains why the Swiss National Bank developed separate statistics for fiduciary business and why Swiss bank balance sheets understate the international business actually conducted by the banks. The European Union’s Savings Directive of 2005 closed part of the tax advantage by extending its retention tax to interest paid through fiduciary agents. The automatic exchange of information, applied by Switzerland from 2017, removed most of what remained.⁷ The instrument survives today as a conventional money-market product of Swiss banks, marketed mainly to corporate treasurers and institutional clients as a way to invest liquidity free of Swiss withholding tax.⁸

The Swiss franc foreign bond and issuance control

The second channel between Zurich and the international capital market ran in the opposite direction. Because Swiss interest rates were low and the franc was strong, foreign borrowers found it attractive to issue bonds denominated in Swiss francs on the Swiss market. The World Bank issues of the late 1950s and early 1960s mentioned in section I were among the most prominent examples. Over the following decades governments, supranational organisations and large companies from all over the world tapped the Swiss market. Unlike the Eurobonds of London and Luxembourg, these were domestic Swiss issues by foreign borrowers, underwritten by syndicates led by the big banks and listed on the Swiss stock exchanges.

The Swiss National Bank controlled this market closely. Article 8 of the Banking Act of 1934 required banks to notify the SNB of capital exports above a certain size, allowing the central bank to object on grounds of monetary or exchange-rate policy or of the country’s economic interests. On this basis the SNB for decades decided which foreign issues could come to the market, in what amounts and in what order. Its chronicle records, for instance, that in 1976 it laid down guidelines for bond issues by foreign borrowers and raised the maximum amount of a single issue from 100 million to 200 million francs, that in 1982 it revised a number of provisions relating to article 8 in order to simplify trading in medium-term notes, and that in 1984 it abolished the issuance calendar for public bond issues by foreign borrowers. The local presence principle replaced the old syndication rule in 1993. Two years later a simple reporting obligation for new Swiss franc bond issues took the place of the former controls.⁹

The controls had two purposes. The first was monetary. By regulating capital exports the SNB could influence the exchange rate: foreign borrowers who converted their franc proceeds into other currencies weakened the franc, which the SNB welcomed in periods of upward pressure and restrained in periods of weakness. The second purpose, which the SNB rarely stated openly, was to keep the franc from becoming a major international reserve and investment currency. The Swiss authorities feared that a large offshore market in francs, outside their control, would make monetary policy impossible. For that reason they insisted that franc issues be led by Swiss banks in Switzerland and resisted the development of a Euro-Swiss franc bond market in London. The local presence principle of 1993 was the last expression of this attitude. It required a bank leading a Swiss franc issue to have a presence in Switzerland. The practical result was a comfortable oligopoly for the Swiss big banks, which earned substantial fees from the business while carrying out a policy function on behalf of the central bank.

The Eurobond market and Credit Suisse White Weld

Swiss banks were also among the most important investors in and distributors of Eurobonds, the international bonds issued outside the jurisdiction of any single currency. The Eurobond market began in 1963 with an issue for the Italian motorway company Autostrade, distributed through the London merchant bank S. G. Warburg. Its bonds were issued in bearer form, which concealed the identity of the holders and made them attractive to private investors who valued anonymity.¹⁰ Many of those investors were clients of Swiss banks. The Swiss banks’ ability to place large amounts of new bonds with their discretionary portfolios became known in the market as “placing power”. A new issue that the Swiss banks declined to support was hard to sell.

The closest link between Zurich and the Eurobond market was forged by the Swiss Credit Bank. It bought the Zurich subsidiary of the American investment bank White, Weld & Co. in 1962. In 1974 the two institutions established a joint company in which the Swiss bank became the largest shareholder. When Merrill Lynch acquired White Weld in 1978, Credit Suisse entered into a partnership with First Boston, which gave rise to Financière Crédit Suisse–First Boston and to the name CSFB, for many years among the leaders of the Eurobond market.¹¹ The Swiss banker Robert Genillard, who had joined White Weld in 1954 and became chairman of its European operations in the early 1960s, was one of the pioneers of the market. He hired Hans-Jörg Rudloff, later called the “king of the Eurobond market”. In 1970 he also recruited a young bond trader named Oswald Grübel, who would eventually run both Credit Suisse and UBS.¹² The personal lineage from White Weld through CSFB to the leadership of the Swiss big banks in the 2000s shows how deeply the Euromarkets shaped the culture of Zurich banking. They taught Swiss bankers to think of themselves as participants in a global market and prepared the ground for the investment-banking ambitions whose consequences Part G of this book describes.

The Euromarkets thus changed Zurich in two ways. They offered Swiss banks an outlet for the foreign money that the Swiss authorities did not want in the domestic system, while drawing Swiss banks into the heart of London’s international business. The result was a division of labour that lasted until the 1990s: London was the place where transactions were booked and traded, Zurich the place where the clients’ money was managed and where the decisions about its placement were taken. Luxembourg, where Swiss and German banks set up subsidiaries for fiduciary and Eurobond business, became a third point in the triangle.

Notes

1. Wikipedia, “Eurodollar”, section on history, https://en.wikipedia.org/wiki/Eurodollar. The article sets out both accounts and notes that the market had reached about 70 billion dollars by the end of the 1960s. ↩
2. Catherine R. Schenk, “The Origins of the Eurodollar Market in London: 1955–1963”, Explorations in Economic History 35 (1998), https://www.sfu.ca/~poitras/EEH_Eurodollar_98.pdf. ↩
3. Beda Angehrn, “Die Schweizer Banken und der Euromarkt”, Schmollers Jahrbuch 100 (1980), no. 4, pp. 363–381, abstract at https://elibrary.duncker-humblot.com/article/71185/die-schweizer-banken-und-der-euromarkt. ↩
4. Niels Johannesen, “Tax evasion and Swiss bank deposits”, Journal of Public Economics 111 (2014), pp. 46–62, https://nielsjohannesen.net/wp-content/uploads/Tax-evasion-and-Swiss-bank-deposits_PUBLISHED_JPubE.pdf. ↩
5. Swiss National Bank, Monatsbericht / monthly report, June 1983, section on the banks’ foreign position, https://www.snb.ch/public/asset/en/www-snb-ch/publications/statistical-publications/monthly-statistical-bulletin/1983/monatsbericht_1983_06/publications0_en/monatsbericht_1983_06.n.pdf. ↩
6. Niels Johannesen, “Tax evasion and Swiss bank deposits”, Journal of Public Economics 111 (2014), https://nielsjohannesen.net/wp-content/uploads/Tax-evasion-and-Swiss-bank-deposits_PUBLISHED_JPubE.pdf. ↩
7. Niels Johannesen, “Tax evasion and Swiss bank deposits”, Journal of Public Economics 111 (2014), which describes the extension of the Savings Directive’s withholding tax to interest paid by fiduciary agents, https://nielsjohannesen.net/wp-content/uploads/Tax-evasion-and-Swiss-bank-deposits_PUBLISHED_JPubE.pdf. The reference to automatic exchange of information is the author’s own addition. ↩
8. St. Galler Kantonalbank, “Treuhandanlagen – Liquidität verrechnungssteuerfrei anlegen”, product page, https://www.sgkb.ch/de/geschaeftskunden/anlegen-gk/kurzfristige-anlageinstrumente/treuhandanlagen. The page was identified through a search result and is cited for the current marketing of the product as free of withholding tax. ↩
9. Swiss National Bank, “Chronicle of monetary events”, entries for 1976, 1982, 1984, 1993 and 1995, https://www.snb.ch/en/the-snb/organisation/history/geld-und-waehrungspolitische-chronik. The description of article 8 of the Banking Act of 1934 as a notification requirement with a right of objection is the author’s summary of the historical provision. ↩
10. finews.asia, “Obituary: Swiss Banker and Eurobond Market Pioneer Robert Genillard”, https://www.finews.asia/people/23062-robert-genillard-obituary-hans-joerg-rudloff-oswald-gruebel. The article gives the size of the Autostrade issue as 15 million dollars. The year 1963 is the standard date in the literature. ↩
11. FundingUniverse, “Credit Suisse Group History” (company history based on the International Directory of Company Histories), https://www.fundinguniverse.com/company-histories/credit-suisse-group-history/, on the purchase of White, Weld & Co. AG in Zurich in 1962, Credit Suisse becoming the largest shareholder of WW Trust, renamed Société anonyme financière du Crédit Suisse et de White Weld, in 1974, and the creation of Financière Crédit Suisse–First Boston after Merrill Lynch’s acquisition of White Weld in 1978, with its dominance of the Eurobond market. ↩
12. finews.asia, “Obituary: Swiss Banker and Eurobond Market Pioneer Robert Genillard”, https://www.finews.asia/people/23062-robert-genillard-obituary-hans-joerg-rudloff-oswald-gruebel. ↩

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.