Switzerland’s decision to start playing ball with other governments on issues like tax evasion and the arrest of Roman Polanski has destroyed the country’s reputational capital, which formed the core of its banking system. If you can’t safely park your cash, bearer bonds, gold, and other valuable in Swiss Banks, without a 100% iron-clad guarantee of your security and secrecy, what’s the point?
Following the whole UBS fiasco, even citizens of European countries are washing their hands of Swiss Banks.
WSJ: This past week, Italian tax authorities raided local offices of Swiss banks, in what Swiss bankers regard as an attempt to scare tax dodgers. And new treaties Switzerland has signed with France and the U.K. make it easier for those countries to pursue information on suspected tax dodgers.
The tax crackdown isn’t the only factor driving European money away. Many European baby boomers are also anxious to bring money home to recapitalize sagging businesses or pass the money on to their children.
For Swiss banks, a fat business is slipping away. Citizens in Italy, Germany and France — the big three tax-dodging nations — stashed their money in Switzerland because of political unrest at home, high inflation and sky-high tax rates. They weren’t always after high returns, and they complained little about performance and rarely visited their bankers, who typically had them sign discretionary mandates allowing the bank to act on their behalf. Higher fees on discretionary mandates mean such clients are twice as profitable as those who directly manage their accounts. Some bankers privately admit that the fees on undeclared money can be several times those on declared money.
It’s too bad, actually, because Swiss banks still somehow fit into our idealised view of banks — companies built on trust that promise to keep your valuables 100% safe — rather than the FDIC-backed trading houses making money on overdraft fees we have here today.
That being said, the knowledge that the US and the rest of Europe stands behind all major banks, and won’t let them fail is further reason Switzerland may be coming irrelevent.