The real-estate crisis of the early 1990s

Boom and turn

The real-estate crisis of the early 1990s was the most severe domestic banking crisis in Switzerland since the 1930s. Its roots lay in the second half of the 1980s. After the stock market crash of 19 October 1987, investors shifted capital into property while the Swiss National Bank pursued an expansionary monetary policy designed to cushion the effects of the crash. Commercial property prices nearly doubled between 1980 and 1987. Prices of single-family homes and owner-occupied flats doubled over the decade from 1980 to 1990, and banks competed to finance the boom with mortgage loans at high loan-to-value ratios.¹

The turn came when inflation rose. When consumer prices were increasing at 6.4 per cent a year by the autumn of 1990, the National Bank under its president Markus Lusser reversed its course by tightening the money supply sharply. Inflation fell below one per cent by the middle of the decade, but the price was an economy that went through three years of recession followed by three years of stagnation between 1990 and 1996. Unemployment rose to about five per cent, a level unknown in post-war Switzerland, leaving a structural rate of around three per cent that persisted afterwards. In 1989 alone the discount rate was raised from 3.5 to 6 per cent.² Higher interest rates hit borrowers who had financed property at the peak of the market, while the collapse of rental demand reduced the value of the collateral on which the banks relied.

The fall in values was dramatic. Rental property lost half of its value in the six years after 1991, with the market reaching its bottom only in 1997. Vacancy rates for commercial property rose from 0.4 per cent for all real estate in 1989 to twelve per cent in 1993. Between 1991 and 1996 the banks wrote off CHF 42.3 billion of domestic credit, a sum equivalent to more than ten per cent of Swiss gross domestic product at the time. Non-performing loans reached 8.5 per cent of all credit. With a ratio of 12.6 per cent, the big banks were more exposed than the average.³ The last figure deserves emphasis because it corrects the common image of the crisis as a problem of small banks. The big banks suffered too, but they had the diversification and the reserves to absorb their losses and used the crisis to buy weaker competitors.

Spar- und Leihkasse Thun

The event that turned a credit problem into a public shock took place in the Bernese Oberland. On 3 October 1991 the Federal Banking Commission, the predecessor of today’s Swiss Financial Market Supervisory Authority (FINMA), ordered the closure of the Spar- und Leihkasse Thun, and two weeks later it revoked the bank’s licence. The bank had expanded its mortgage lending aggressively in the boom of the 1980s, and when the bubble burst it could not absorb the losses. Customers found the doors closed and feared for their savings. Thousands of them lost part of what they had saved. A porter at the Federal Palace in Bern, where the closure was announced at a press conference, later described it as the worst moment of his life.⁴

The losses of depositors have been put at around CHF 220 million.⁵ Protection of small savers existed only in the form of a private agreement among the banks. In 1984 the Swiss Bankers Association had adopted Convention XVIII, under which its members financed the payment of savings and salary accounts up to CHF 30,000 in the event of a bank failure. In the Thun case the association advanced CHF 79 million and later recovered 71 per cent of that amount from the bankruptcy estate.⁶ The episode demonstrated the limits of a self-regulatory scheme that had never been tested on this scale. It also marked the beginning of a long legislative process that led, after further failures abroad, to the statutory deposit protection of the Banking Act as it stands today.

For the history of the Zurich financial centre the failure in Thun matters for two reasons. First, it showed that the Swiss banking system, whose reputation abroad rested on stability and discretion, was vulnerable to an old-fashioned bank run. Second, it strengthened the conviction of the regulators that small banks with concentrated regional lending were the weakest link of the system. That conviction shaped supervisory policy for the rest of the decade and made the authorities receptive to takeovers of weak institutions by the big banks, even where such takeovers increased concentration.

Regional banks and cantonal banks

The Thun failure was followed by a wave of rescues, mergers and closures. Of 625 banks in existence in 1990, a third had disappeared by 1995, and only about half of the roughly 200 regional banks active at the beginning of the decade survived until 2000.⁷ In 1994 a number of surviving regional banks founded a common holding company to pool services and strengthen their capital base.⁸ Many other regional institutions were absorbed by cantonal banks or by the big banks, whose branch networks in the countryside grew as a result.

The cantonal banks, although backed by their cantons, were not spared. The Historical Dictionary notes that the economic crisis and the collapse of the property market hit them hard and threatened the existence of some of them, citing Bern in 1992 and Geneva in 2000. The crisis led to mergers, partial privatisations and the disappearance of the cantonal banks of Solothurn and Appenzell Ausserrhoden. Their number fell from twenty-nine in 1990 to twenty-four in 1999.⁹ The case of the Berner Kantonalbank was the most expensive. In 1993 its bad loans were transferred to a separate company, the Dezennium Finanz AG. The total loss of CHF 2.6 billion was covered by CHF 1.1 billion from the bank’s own reserves and CHF 1.5 billion from the canton of Bern. The bank lost its state guarantee in the process.¹⁰

After the voters of Solothurn had approved the sale of their cantonal bank to the Swiss Bank Corporation on 4 December 1994, the bank ceased to exist on 1 January 1995. The sale limited the losses of the canton to CHF 400 million, whereas a rescue would have cost an estimated CHF 1.2 billion. The 6,000 holders of participation certificates lost CHF 40 million. In December 1995 the canton of Appenzell Ausserrhoden sold its cantonal bank to the Union Bank of Switzerland for CHF 180 million, after years of difficulties that included an embezzlement at the Teufen branch and investments in ventures as remote from local banking as a Canadian salmon farm.¹¹ The sale of two cantonal banks to Zurich- and Basel-based big banks had a symbolic dimension that went beyond the sums involved. The cantonal banks had been founded in the nineteenth century partly as a counterweight to the power of the big commercial banks. That two of them now became part of those banks showed how far the balance of power in Swiss banking had shifted.

The supervisory response

The Federal Banking Commission drew its own conclusions from the domestic credit crisis. Since the 1990s it required every bank to hold capital exceeding its mandatory capital requirements by a buffer of at least twenty per cent.¹² This Swiss finish on the capital rules, which had its origin in the losses of regional and cantonal banks, would later become a model for the much more demanding requirements imposed on the big banks after 2008. The crisis also sharpened the attention that the authorities paid to the concentration of mortgage risk. That attention has never disappeared. The property market is still watched in Switzerland with a nervousness whose memory reaches back to Thun.

There is a direct line from these events to the consolidation of the big banks. The Schweizerische Volksbank, the weakest of the five, was brought down by the provisions it had to make on property loans. Bank Leu had already been absorbed before the crisis reached its peak. Regional banks sold themselves to larger institutions. The crisis therefore acted as an accelerator. It removed the smaller competitors of the three leading banks, weakened the cantonal banks for several years and left the domestic market in the hands of fewer and larger players. For the Zurich financial centre, whose three leading banks survived the crisis, the result was a further concentration of market power, capital and talent in the city.

Notes

1. Finanz und Wirtschaft, “Die Schweizer Immobilienblase der Neunzigerjahre”, https://www.fuw.ch/article/die-schweizer-immobilienblase-der-neunzigerjahre; watson.ch, “Inflation, Immobilienblase, Bankencrash: So schlimm war die Wirtschaftskrise der 90er Jahre”, https://www.watson.ch/wirtschaft/schweiz/827854431-inflation-immobilienblase-bankencrash-so-schlimm-war-die-wirtschaftskrise-der-90er-jahre. ↩
2. watson.ch, “Inflation, Immobilienblase, Bankencrash”, as cited above; Finanz und Wirtschaft, “Die Schweizer Immobilienblase der Neunzigerjahre”, as cited above. ↩
3. Finanz und Wirtschaft, “Die Schweizer Immobilienblase der Neunzigerjahre”, as cited above. The article relies on figures of the Swiss Federal Banking Commission and the Swiss National Bank. ↩
4. Bilanz, “Wie eine Thuner Regionalbank zum Symbol der Krise wurde”, https://www.bilanz.ch/invest/wie-eine-thuner-regionalbank-zum-symbol-der-krise-wurde/wx1sm12. The article describes the failure as “das Lehman Brothers der Schweiz”; SWI swissinfo.ch, “Ein Bankensturm in der Schweiz – könnte es wieder passieren?”, https://www.swissinfo.ch/ger/wirtschaft/spar-und-leihkasse-thun_ein-bankensturm-in-der-schweiz-koennte-es-wieder-passieren/42501688. ↩
5. Finanz und Wirtschaft, “Die Schweizer Immobilienblase der Neunzigerjahre”, as cited above. ↩
6. esisuisse, “Geschichte”, https://www.esisuisse.ch/de/ueber-uns/geschichte. esisuisse, the deposit insurance scheme of Swiss banks and securities firms, took over the external financing of deposit protection from the Swiss Bankers Association in 2005. ↩
7. Finanz und Wirtschaft, “Die Schweizer Immobilienblase der Neunzigerjahre”, as cited above. The figures of this article differ slightly from those of the Historical Dictionary of Switzerland because of different reference dates. ↩
8. HLS, “Banken”, as cited above. ↩
9. HLS, “Kantonalbanken”, as cited above. ↩
10. SRF News, “Immer wieder fallen Kantonalbanken auf die Nase”, https://www.srf.ch/news/wirtschaft/blkb-debakel-kein-einzelfall-immer-wieder-fallen-kantonalbanken-auf-die-nase. ↩
11. SRF News, “Immer wieder fallen Kantonalbanken auf die Nase”, as cited above. The same report describes the later losses of the Banque Cantonale Vaudoise, which required CHF 1.25 billion of cantonal support in 2002. ↩
12. Swiss Financial Market Supervisory Authority (FINMA), “Finanzmarktkrise und Finanzmarktaufsicht”, report of 14 September 2009, https://www.finma.ch/de/~/media/finma/dokumente/dokumentencenter/myfinma/finma-publikationen/aufsichtsberichte/bericht01_finanzmarktkrise-und-finanzmarktaufsicht_endversion_d.pdf?la=de. ↩

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.