Last April 11, Swiss Green Party member Franziska Ryser filed a draft bill for bank separation in Switzerland. On May 24, the government (Federal Council) announced its negative position. A Parliament debate has not yet been scheduled.
The bill’s text reads: “The Federal Council is instructed to take the necessary steps to introduce a bank separation system for systemically important banks in Switzerland.
“The renewed intervention of the state to rescue/take over a systemically important bank in Switzerland within 5 years requires a careful examination of the effectiveness of the existing regulation and possible alternatives. The bank separation system, as the U.S. knew it from 1933 to 1999, can lead to an unbundling of risky investment banking from commercial banks. If nothing else, this can reduce the investment banking culture (high returns, high leverage and high risk appetite) that is evident in universal banks today and contribute to a more responsible management culture. In the TBTF regulation, the option of a bank separation system was insufficiently explored and dismissed with the argument of too much restriction in the banks’ freedom of action. However, the past weeks have invalidated this argument, as despite TBTF regulation, government guarantees in the order of magnitude of the total existing government debt had to be issued in order to prevent further destabilizing effects on the financial markets and the economy. A report will therefore examine and explain how a separation banking system would work in day-to-day banking operations and in a crisis situation, what design options are available and what steps would be necessary for their implementation. In doing so, possible designs as well as the dependencies on the relevant capital and liquidity requirements will be examined and compared with regard to their feasibility and their respective advantages and disadvantages.”
