the swiss banking sector

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  • 1.Compendium Edition 2004The Swiss Banking Sector

2. Preamble This compendium aims to provide an overview of structures, processes and institutions in the Swiss banking and financial centre. In our activity report ( we provide comprehensive information about the key events of the past year. In the compendium we focus primarily on the global structures and institutions of the banking sector and their development, and we only address those events of the past two years which were relevant to these issues.The compendium is intended for readers outside the industry who seek to gain a general understanding of the banking sector, as well as professional bankers with an interest in obtaining accurate informa- tion on a specific subject. The compendium may also serve as sup- port literature for university level lectures and as a general reference. The 2004 edition is an expanded update of the 2001 version. The compendium is updated bi-annually.The author looks forward to receiving your comments and sugges- tions on his e-mail address:, October 2003 Swiss Bankers Association PO Box 4182 4002 Basel Switzerland 2 3. ContentsPage2 Preamble 3 Contents 6 Index of Acronyms Chapter 18Economic Function of the Financial System Inter-Temporal Exchange 8 Allocation of Funds 9 Allocation of Risks 9 Supply of Liquidity 9 Information and Monitoring10 Difference Between Banks and Industrial Companies Chapter 2 11Banks in the Overall Economy High Output and Productivity12 Important Employer, Above-Average Salaries12 An Important Taxpayer12 Asset Management is a Core Competence Chapter 3 14Development of Select Business Areas Lending Business Profitable and Crucial to the Economy15 Investment Funds15 Self-Regulation in Fund Business16 Mortgage Business16 Mortgage Business in a Process of Change17 Investment Banking18 Payments18 Swiss Interbank Clearing AG3 4. 18 Swiss Euro Clearing Bank19 Continuous Linked Settlement (CLS)19 Investment Advice and Asset Management20 Safe Custody of Securities and Valuables21 Global Custody21 Draft for a Securities Custody Act22 Fiduciary Business22 Derivative Financial Instruments Chapter 4 23Economic Challenges for the Banks Additional Synergy and Savings Potential Exists24 The Choice of Business Model is Decisive25 New Challenges in Wealth Management26 Continued Success Thanks to Standardisation and Disintegration Chapter 5 27Supervision and Regulation of Banks The Federal Banking Commission (FBC)27 Banking Regulation: Purpose and Basis28 Reform of Financial Market Regulation29 Banks, Banking Commission and Auditors29 Impeccable Business Conduct as Requirement for Banking Licence29 Auditors as Instruments of the FBC30 Reform of Bank Audit30 Compliance30 Business Activity Requirements30 Equity31 New Basel Capital Accord (Basel II)31 Risk Monitoring31 Liquidity32 Depositor Protection32 Amendment of the Bank Insolvency Law33 Amendment of the Depositor Protection Agreement33 Annual Statement and Balance Sheets34 FBC Guidelines on Accounting Regulations (FBC GAR)34 Self-Regulation and Code of Conduct34 Code of Conduct with Regard to the Exercise of Due Diligence (CDB 03)35 Swiss Banking Ombudsman36 International Co-Operation among Supervisory Authorities36 Administrative Co-Operation and In Situ Monitoring37 Consolidated Supervision37 Bank Customer Confidentiality38 Swiss Tax System38 Direct Withholding Tax as a Correlation38 Taxation of Savings Interest Earnings in the EU,Tax Retention in Switzerland39 Anti-Money Laundering Measures39 Public Law and Penal Code40 International Mutual Legal Assistance in Criminal Matters40 Self-Regulation 4 5. Chapter 6 41The Banks Joint Organisations Position and Significance of the Joint Organisations42 Swiss Financial Services Group AG (SIS)42 SIS SegaInterSettle AG42 SIS x-clear AG42 Telekurs Group43 Telekurs Multipay AG43 Telekurs Card Solutions AG43 Swiss Interbank Clearing43 PayNet (Schweiz) AG43 Telekurs Financial AG43 Telekurs Services AG43 Stock Exchanges44 SWX Swiss Exchange44 Swiss Value Chain45 SWX GroupChapter 7 46The Swiss National Bank The Monetary Concept47 Monetary Control47 Repurchase Agreements48 Other Duties of the SNB48 Cash Supply48 Non-Cash Payment Transactions49 Creating Currency Reserves49 Monitoring of the System Stability49 International Co-Operation49 Advisor and Banker to the Federal GovernmentChapter 8 50SwissBanking The Swiss Bankers Association Safeguarding Interests and Self-Regulation as Primary Objectives50 Membership List Includes Auditors and Securities Traders51 General Assembly, Board of Directors and Office Chapter 9 52Categories of Banks Categories of Banks as per SNB Banking Statistics52 The Cantonal Banks53 The Big Banks53 Regional Banks54 Raiffeisen Banks54 Private Bankers55 Other Banks55 Non-Bank Financial Intermediaries56 Selection of Basic and Advanced Literature59 Internet Addresses 5 6. Index of AcronymsArt. ArticleSBL Federal Act on Banks and Savings Banks (Swiss Banking Law)SESTA Federal Act on Stock Exchanges and Securities TradingFSO Federal Statistics OfficeBIS Bank for International SettlementCBOT Chicago Board of Trade CHF Swiss franc CS Credit Suissei.e. that is (id est)FBC Swiss Federal Banking Commission fed. Federal EU European UnionEUREX EURopean EXchangeECB European Central Bank f./ff. Following page/following pages (folio/folios) FATF Financial Action Task Force on Money LaunderingGAAP Generally Accepted Accounting Standards MLA Federal Act on the Prevention of Money Laundering in the Financial Sector 6 7. Psr. Publisher IAS International Accounting StandardsIntersettle Swiss Corporation for International Securities SettlementsSME Small and Medium-sized Enterprises DD Direct Debitm. million bn. billion MROS Money Laundering Reporting Office Switzerland Nasdaq National association of securities dealers automated quotation system NYSE New York Stock Exchange OTC Over-the-Counter p.a. for the year, annual (per annum) Repo Repurchase AgreementCR Circular (FBC) SBA Swiss Bankers Association FDCB Federal Act on Debt Collection and Bankruptcy SEC Securities and Exchange CommissionSECB Swiss Euro Clearing Bank GmbH FrankfurtSECOM SEga COMmunication System SFS Swiss Financial Service Group SIC Swiss Interbank Clearing SIS SegaInterSettle AGSNB Swiss National Bank SPC Swiss Penal CodeSWX SWiss eXchange (Swiss stock exchange) TARGET Trans European AutomatedReal-Time-Gross-Settlement-Express-Transfer-System i.a. including, among other things (inter alia)CDB Agreement on the Swiss banks code of conductwith regard to the exercise of due diligence e.g. for example (exempli gratia) 7 8. 1 Economic Function of the Financial System Inter-Temporal Exchange All financial business is conducted on the basis of contracts. These agreements form the basis of and regulate the exchange of payments at different intervals between two or more parties. The lender makes cash or cash-like equivalents available to the borrower on a given day and receives a promise from the borrower that he or she will repay the loan in the future. This voluntary exchange has advan- tages for both sides: the borrower has the opportunity to make pur- chases or investments which he or she would otherwise have to post- pone or abandon altogether; to obtain this advantage, the borrower is prepared to pay an interest on the capital borrowed. In return, the interest payment compensates the lender for agreeing not to use his or her funds immediately.Allocation of Funds Investment capital is always limited. Consequently, a selection of projects to be considered is necessary. The decision is driven primarily by the price: the advantage is with the borrowers who are willing and able to pay the prevailing market rate of interest. Thus the decision depends on the expected return on the investment to be financed. At this initial stage, any possible risk to the lender is abstracted. The very existence of such risk means that we need to check and monitor (see below). 8 9. Allocation of Risks The risks (and opportunities) are distributed differently for bank loans and private equity financing.Different levels of risk and opportunity are inherent in bank loans and private equity financing. In the case of a bank loan, the lender has a legal right to claim repayment and interest irrespective of the success of the project to be financed. However, in practice, the bor- rower may be unwilling (lack of repayment discipline) or unable (lack of credit worthiness) to meet his liabilities. In the case of private equity financing, the lender participates in the success or failure of the project.Individual risks can be eliminated by the law of large numbers; systematic risk cannot. Conservative lenders will only assume such risk if they receive compensation in the form of a risk premium. The rapid development of financial derivatives has rounded out the market system: using Lenders will only assume derivatives, risks can often be isolated more risk if they receive com- accurately and thus transferred; as a result pensation in the form of the opportunities for risk allocation have increased. Derivatives are based on variousa risk premium. combinations of three basic types of financial contract: forwards/- futures, swaps and options. Depending on the underlying instruments, a distinction is made between rate, currency and index derivatives.Supply of Liquidity Liquidity describes the ability to settle a payment commitment on time. An asset is deemed liquid if it can be sold, and thus converted into legal tender (money), at any time in any volume, without a price loss vis--vis the market rate. Banks help their customers to cover themselves against the risk of unexpected funding requirements. This is one of the reasons why secondary markets exist. An assets level of liquidity also depends on the market in which it is traded, as well as the system of that market and the qua

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