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» Financial system of Switzerland
Financial system of Switzerland
Switzerland is a highly developed industrial country with export-oriented progressive science intensive sectors, and an enormous sphere of services. Its peculiarity consists in high competitiveness of expensive first-class goods secured with reliable after-sales service.
The country ranks the first place by clock export worldwide, the second - paper converting equipment, the fourth – textile and food industries equipment; it produces 10% of consumable medicaments all over the world. Switzerland found its niche in invisible exports – spheres of consulting, insurance, tourism, and banking services.
Swiss Franc (CHF) has been the unit of money since 1848. An influence of inflation was insufficient on it for a long period of time. Since the First World War till 1971, it was subjected to devaluation just once (in 1936). From January 1973, after adoption of floating exchange rate system, the situation characterized as an improvement in exchange of the Swiss frank in relation to the USD. A level of inflation with respect to other countries is very low (Table 1). Thus, people give preference to Switzerland if they want to deposit money not for few years, but for several generations.
Table 1. Dynamics of economic indicators in Switzerland and euro area, % | Switzerland | Euro area | 2004 | 2005 | 2006 | 2004 | 2005 | 2006 | GDP Inflation Unemployment | 1,7 0,8 3,9 | 1,5 1,2 3,7 | 1,8 1,1 3,4 | 2,0 2,1 8,9 | 1,6 1,9 8,9 | 2,0 1,6 8,9 |
Swiss banks are known fro their traditions to be respectful to private life. A legal safeguard of the Bank Secrecy is consolidated by Constitution, Civil Code, Code of Laws, partially by Criminal Code, and the Swiss Banking Act of 1934. Compliance of privacy and stability of legislation are exclusive for financial system.
Market of shares is extremely developed, playing an important role both within and outside the country. Capital stock market and derivative financial tools gained a significant importance in the last years. It’s the result of an adoption of stock exchange federal legislation and merging of three Swiss banks – Zurich, Geneva and Basel – that formed the Swiss Stock Exchange.
A broadening of the range of bank products had a positive impact on trading volume. If in 2000 only 454 thou contracts were sold, then in 2005 – 1,2 mln.
The Swiss Stock Exchange successively realizes a strategic directive on foreign expansion. Nowadays, it has 50% of the European stock exchange (EUREX), where takes place e-trade by derivative funds. By means of EUREX Zurich AG it shares 23% of safety stocks of European Energy Exchange, which represents the biggest electrical power market in Europe, located in Leipzig. The importance of the Swiss Stock Exchange for economy of the country is confirmed by turnover indicators and capitalization of the country. So, in 2006, Stock Exchange turnover rose by 36.5% to nearly CHF 2 bn, that supported by a 20% growth of capitalization of companies-issues (1,2 bn).
The total value of marketable securities at the Swiss Stock Exchange and their issues increased from CHF 458 bn to 1,3 trn in 1995 and 2007 respectively. According to absolute indicators, Switzerland ranks 10. These data obtain sufficiently different meaning in case they are compared to GDP. Owing to this fact, Switzerland reach 210% and takes place among world leaders.
In the course of analysis of various sectors’ shares in market capitalization one can find out interesting correlations: the highest stands are taken by corporations’ capital issues in a sphere of public health (30.2%), after them go banks (20.9%), enterprises of food industry (13.6%) and other financial organizations (9.6%). 75% of market capitalization fall on these four industries.
A high degree of concentration of companies-issues capitalization is also discovered in section of separate capital issues. So, the ten largest companies possess 90% of market capitalization by the end of 2005. Novartis (18.7%), Nestle (17.3%), Roche (15.1%), UBS (13.4%), CS Group (8.0%), Zurich FS (4.4%) and Suisse Re (3.4%) play an import role.
55% of Swiss banks’ clients are foreigners, including private (25%) and corporative (30%) depositors. 31.2% of personal property from all over the world is at disposal of Swiss banks, i.e. Switzerland leaves behind leading financial centers: Caribbean islands – 15.6%, London – 11.4%, Luxembourg – 11.4%, New York – 10%, Singapore – 7.7%.
There are 147 foreign banks in the country. In turn, 100 various institutional patterns of Swiss banks work outside the country, including offshore areas.
The standard rate of VAT (7.6%) is the lowest in Europe. The federal income tax – 7.8%, but differential cantonal and municipal rates of this kind of tax is higher (for instance, in Zurich from 2005 – 15.7%). Switzerland signed an agreement on order to avoid double taxation with over than 100 countries worldwide.
It should be mentioned, that low interest rates within the country are due to international capital flows and a high rate of savings, which attract bank clients- debtors. A comfortable geographical location is another competitive advantage of the Swiss Confederation. It is no coincidence, that first large banks appeared in Geneva and Basel – the least remote cities from Germany and France.
There are officially used four languages (German – 63.6% of population, French – 20.4%, Italian – 6.5%, Rhaeto-Romanic – 0.5%), and the fifth one has practically become English. Proficiency in several languages assists bankers in direct communication with clients.
Except for above-mentioned advantages of Switzerland, specialists show a bit higher rate of savings in comparison with other European countries: exports of Swiss capital made it possible owing to the volume of domestic savings, which considerably exceeded a level, necessary for domestic needs.
One more factor, that favorably influenced the success of the country, including banking, is a national character, distinctive features of which are endurance and capacity of work (working day in Switzerland is still longer than in other European countries).
Switzerland offers their clients so-called “package”: banks with quick servicing in any language, perfect trade centers, luxurious hotels, and reliable airports. The whole set of these terms commands clients’ respect to the country – the first and necessary condition to successful work.
Thus, Switzerland won the leading stand both in world finances and banking owing to the following country’s features and advantages:
- political and financial stability;
- strength of national currency;
- neutrality makes it impossible to close accounts due to political reasons, and denies the measures like the Enemy Property Act;
- banking security;
- geographically advantageous location (the center of Europe);
- legal system, organized better than in the USA;
- well-trained personnel.
The above-mentioned factors are typical for many countries, but they’re not so evident.
The economy of Switzerland has never been so broad as to normally make the country the center of world trade and finances. Besides, basic political and economic factors, notably, high GDP, low inflation, active foreign trade balance, stable country and universal banking system made the Swiss Stock Exchange one of the most attractive in the world.
Source: IRUE "National center of marketing and price study"
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