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The framework agreement currently under consideration in Switzerland is having a tough time mustering enough support, not least from cantonal governments, which are powerful players in Swiss politics. They worry that the deal will give the EU the power to influence cantonal tax regimes or their ability to own stakes in companies. Cantonal banks may be the best example in case: the EU in principal objects to state aid in the financial sector.

Many questions remain to be answered and the cantonal bank association refers to the uncertainties surrounding the framework agreement.  «The association is currently evaluating whether there will be any effects,» it said.

Liechtenstein Landmark Decision

A recent decision in Liechtenstein, which enjoys very close links to Switzerland and also uses the franc as its currency, was studied closely in Swiss board rooms. The parliament of the tiny principality removed the state guarantee of Liechtensteinische Landesbank (LLB). It was an act of anticipatory obedience: the guarantee was due to expire in 2020.

But the European Economic Area and the European Free Trade Association – Liechtenstein is a member of both bodies – would not have accepted a renewal of the guarantee.

Postfinance Decision

Another decision with far-reaching implications also put the issue of state guarantees firmly in the spotlight. The Swiss federal government in September relented and accepted a request from Postfinance, the banking arm of Swiss Post, to start selling loans. The reason behind the change in opinion were persistently low interest rates that make retail banking an even tougher business.

The government will now have to change the law regulating the post and its services. The plans may however also reach much further and include a partial IPO and privatization of Postfinance.

Too Successful for Their Own Good?

The cantonal banks were less than happy about the plan to allow a state-backed giant to emerge and others complained about the state guarantee. But Thomas Gottstein, the head of the Swiss bank at Credit Suisse, didn’t see much of a problem, provided Postfinance was privatized. «I am less concerned about such a model than about the cantonal banks with a state guarantee,» he told «Aargauer Zeitung» in the autumn of 2018.

One of the reasons why such a fuss is being made about the state-guarantee rule is the relative success of cantonal banks. The state-backed companies mostly have posted excellent results for last year. They managed to grow their interest business and also attracted new money, which boosted commission income. The profits they generated will help them invest in the digital transformation.

The big and private banks by contrast have had a more troubled year, by and large. Plenty of ammunition for their claim that the cantonal banks don’t really need a state guarantee to thrive.