Swiss capital market: current topics

Niklaus Blattner, Member of the Governing Board

Annual General Meeting of the Pfandbriefbank Schweizerischer Hypothekarinstitute, St Gallen, 15 May 2002, 15.05.2002

If one takes a snapshot of Switzerland as an international financial centre, including the capital market, there is hardly anything to criticise. The banking system is robust. While the market for Swiss franc bonds has lost significance internationally, it continues to be attractive. The money market, by contrast, has gained in stature. The foreign exchange market remains important. The Swiss stock exchange is exemplary on a technical level and superbly networked internationally. The other parts of the financial market infrastructure, especially the payment system, have model character as well.

If one analyses the development of the capital market over the longer term, however, it becomes apparent that there are also some weaknesses. The Swiss franc has lost weight as a borrowing currency in the international bond market, even though the interest rate bonus has been maintained. Notwithstanding its technical competence, the Swiss stock exchange is increasingly facing stiffer competition. Investors are beginning to express reservations about corporate governance in Switzerland as well. However, these and other critical observations are always complemented by positive reports. The stock exchange has issued guidelines regarding the transparency of listed companies. These guidelines spell out in greater detail an important point of the comprehensive Swiss Code of Best Practice on corporate governance, which was recently adopted by economiesuisse, the Swiss Business Federation.

While the Swiss Value Chain, a concept which refers to Switzerland's outstanding financial market infrastructure in its entirety, does show centrifugal tendencies here and there, we can assume that the parties responsible will meet the challenges that lie ahead – there is evidence to this effect – albeit not necessarily solely within the framework of the current jointly operated organisations. The fact that the significance of the Swiss franc as an international borrowing currency is on the decline does not so much reflect the specific weaknesses of the Swiss capital market as a normalisation of the situation on the foreign capital markets – which is positive as such. The role of Swiss franc denominated international bonds will not converge toward zero for the sole reason that the Swiss franc will remain an exceptionally solid currency and the interest rate bonus is thus very likely to be maintained as well.

Refinancing poses a tremendous challenge for many banks. In addition to the current instruments, different alternatives are available, be it in the form of a more efficient asset and liabilities management, increased securitisation and – last but not least – in the form of vehicles that also give smaller banks access to the capital market. Finally, it must be pointed out that Switzerland cannot afford a failure of its international financial centre, including the capital market. However, it is not a question of maintaining the structure, but of boosting its competitiveness.

The contribution of the Swiss National Bank (SNB) primarily consists in maintaining monetary stability. This is a key component of the conditions that must be met in order for prosperity in Switzerland to adequately progress further. Moreover, the SNB bears part of the responsibility for the stability of the financial system and contributes to its appropriate further development.