The history of Credit Suisse, a banking giant that collapsed last week and was bought by rival UBS, offers a glimpse into how economic and political power works in Switzerland but also signals that the future of this model may be in doubt.
In a coordinated drive to preserve the image of Switzerland as the world’s premium financial hub, the government insists this was no bailout and blames “social media rumours” for starting the troubles rather than dubious investments or fat management bonuses paid over the years.
Credit Suisse, or “Schweizerische Kreditanstalt“ as it was called for most of its existence, was founded in 1856. It is, therefore, only eight years younger than the Swiss Confederation, founded in 1848.
That’s no coincidence: Switzerland and Credit Suisse share the same parents.
After the Swiss liberals won a short civil war against the conservative Catholics, they created a federal state to their liking, dominating its government totally until 1891 and then with an absolute majority until 1943.
One of the central figures of the liberal party of 1848 was Alfred Escher, who, together with other elite liberals, set out to bring the poor, agricultural backwater of Switzerland to modernity.
In the mid-19th century, modernity meant the railway, and money was needed to build a railway network, which is why Escher founded the “Schweizerische Kreditanstalt”.
The bank did what it was supposed to, funding the buildout of the Swiss railway system, including the Gotthard tunnel that connected Northern and Southern Europe through the Alps. Credit Suisse also financed the Swiss electrical grid and helped set up insurance companies that today are large corporations in their own right.
As the midwife to Switzerland’s industrialisation, Credit Suisse has always been part of the liberal establishment. Already shortly after Escher founded Credit Suisse, the “Escher system” was starting to get criticised for its concentrated economic and political power.
And the entanglement remained strong throughout history. From 1999 to 2014, for example, Walter Kielholz was on the board of Credit Suisse, presiding over it for six of those years while acting as an important networker in the liberal party, the FDP.
The network between Switzerland’s mostly liberal political leadership and the leadership of the large Swiss corporations has often been derided as “Filz” (felt) for its thick and non-transparent entanglement with each other. Others have praised it for enabling successful and pragmatic economic policies that made Switzerland rich.
Since the 1990s, a heavy dose of globalisation and some political disruption has put a strain on the Filz, but the instinctive proximity of the Swiss government to its large corporations seems to have remained intact.
When the Swiss Federal Council announced the takeover of Credit Suisse through its long-standing rival UBS on Sunday evening (19 March), it was mostly relieved to have prevented more damage to the Swiss financial hub.
One would expect some harsh words from the government now that the public had to step in after years of mismanagement. For example, the government could have called out the bank for the hundreds of millions in bonuses paid out to the firm’s executive management over the past decade while it led the company’s value from weakness to weakness.
But far from it, the entrenched liberal narrative remained dominant.
After the Swiss National Bank and the Swiss government extended a credit line of 200 billion Swiss francs to guarantee Credit Suisse’s liquidity, and after the government provided a guarantee of nine billion francs to UBS to cover financial risks related to the takeover, the liberal Finance Minister Karin Keller-Sutter preferred to stress that “this is not a bailout”.
Marlene Amstad, the chair of the Swiss financial market supervisory authority FINMA, also had a very benign explanation for the collapse of Credit Suisse.
She did not mention the scandalously bad investments in Greensill and Archegos, which might have undermined confidence in the bank, nor did she mention Credit Suisse’s involvement in a corruption scandal that led to an economic crisis in Mozambique, nor the countless fines Credit Suisse had to pay in other jurisdictions.
Instead, she identified “rumours on social media” as the origin of the problem.
Now, the story of Credit Suisse is over and, in a way, so is liberal Switzerland.
In the 19th century, the liberal establishment used Credit Suisse to enhance Switzerland’s position in the world and strengthen its sovereignty.
Now, with the fall and takeover of Credit Suisse, the Swiss government saw itself forced to effectively subsidise the creation of a banking behemoth. Once the dust settles, the new UBS will have invested assets worth $1.5 trillion, twice Switzerland’s GDP.
Its concentration of economic power will be hard to control, while its potential to wreak havoc on the Swiss economy in case it tumbles one day is enormous. And, with its fate closely tied to the moods of international markets, the new monster bank may even jeopardise Switzerland’s sovereignty and independence.