Swiss Banks Must Take Responsibility for Financial Stability, Not Regulators or Lawmakers

Economist Adriel Jost’s Perspective on Bank Stability

As Switzerland’s economy continues to face challenges, it is crucial that banks assume responsibility for their own financial stability rather than relying on regulators and lawmakers. According to economist Adriel Jost, Fellow at the Institute for Swiss Economic Policy (IWP) and President of the think tank Liberethica, banks are not ordinary market economy companies but rather dependent on the state in our economic system.

The State’s Implicit Guarantee

The Swiss franc is a state-owned public good, and bank notes, coins, and sight deposits at the Swiss National Bank (SNB) are legal tender in Switzerland. Furthermore, the means of payment consists primarily of money in commercial bank accounts, which are financed by customers using state-issued means of payment. This highlights the importance of the state’s implicit guarantee that the money is safe, as otherwise customers would not invest their savings in banks.

The SNB’s Role

The SNB provides liquidity to banks when needed, ensuring their stability and preventing a potential catastrophic impact on the economy. However, this also emphasizes the fact that banks cannot go under like other companies, as losses incurred by creditors would jeopardize state money. This makes it clear that the state is more involved in resolving bank issues than with ordinary companies, making it difficult to tell lenders they will not be bailed out.

The Way Forward

Jost suggests that Swiss politicians must decide on the direction forward: either more government intervention or personal responsibility for banks. Those who favor industrial policy argue that the state should assume further risks to strengthen confidence in banks, including introducing a public liquidity backstop and giving FINMA more powers to intervene effectively before problems arise.

The Risks of Government Intervention

However, this would increase moral hazard, incentivizing banks to take greater risks or promote foreign business, making future crises more likely. From a liberal perspective, this is not the way forward.

A Liberal Alternative

Instead, Jost recommends that banks invest in their own stability first by taking on less debt and having more hard equity. This would make them more resilient to shocks and reduce the need for state intervention. Additionally, there should be no subsidized liquidity protection, and banks should assume responsibility for foreign transactions that could jeopardize Switzerland’s stability and independence.

Conclusion

The views expressed in this article are solely those of the author and do not necessarily reflect the views of SWI swissinfo.ch. Jost’s perspective highlights the need for Swiss banks to take personal responsibility for their financial stability, rather than relying on regulators or lawmakers to bail them out. By investing in their own stability, banks can reduce the risk of state intervention and promote a more resilient economy.