The Graubuender Cantonal Bank's (GKB) recent coup of acquiring a state in Zurich's BZ bank shows the cantonal banks are making big strides.

If you find yourself Mumbai, India in need of a representative of Zürcher Kantonalbank (ZKB) will conveniently find one in the local office. French people looking for asset management with Swiss expertise can seek advice from Banque Cantonale de Genève (France) in Paris or Annecy, just as Germans can find the expertise of St. Galler Kantonalbank in Munich.

While this might seem odd for a network of 24 domestic state-owned banks, it does indeed show their increasing reach beyond their home cantons.

They also have an internet presence with apps and neo banks, along with stakes in companies outside the sector and in a nationwide partners network like payment service provider Viseca, real estate portal Newhome, or their mortgage bond centers.

Expanding Network

And the network continues to expand. On Monday, the Graubuendner Cantonal Bank (GKB) acquired a 70 percent stake in the Swiss BZ Bank. At first blush, it seems like Switzerland's best-known financier sold his life's work to a medium-sized competitor in a remote corner of Switzerland.

A closer look, however, shows that GKBs investment entwines it even more in Zurich's financial world. In January GKB acquired a state in the local asset manager Twelve Capital. It also holds a majority stake in asset manager Albin Kistler, and a 55 percent stake in Bellerive, a private bank.

With its investment in BZ Bank, GBK increased its client assets under management to over 50 billion Swiss francs ($50.3 billion, putting it roughly on par with VP Bank, and larger than Geneva-based private bank Mirabaud, according to finews.com rankings.

Hardly Alone

The Graubuenden-based institution is far from the only one to have expanded beyond its core business and its cantonal borders. Radicant, the digital banking subsidiary of Basellandschaftliche Kantonalbank (BLKB), received its banking license from the Swiss Financial Market Supervisory Authority (Finma) in May, allowing it to expand its business throughout Switzerland.

Berner Cantonal Bank decided in March to set up its own IT company, Aity, and contract employees from a partner company. In the same month, Banca Stato in Ticino reported strong annual figures thanks to the retail business of private bank EFG, which it acquired last year.

Sum of the Parts 

Taken together, the net profit of the cantonal banks was 3.4 billion Swiss francs in 2021, more than 8.6 percent above 2020 levels. Their collective balance sheets grew some 4 percent to 749 billion. 

While the banks tend not to scale back operations, they do streamline them. ZKB for example integrated Swisscanto, which it bought from other cantonal banks in 2015 into its own brand. In Basel, the BKB trimmed its Cler bank for efficiency.

To be sure, the cantonal banks have come under criticism due to their privileged position domestically, both implicit and explicit state guarantees, and lack of transparency. This seems to have faded, however, as private banks have their hands full with a booming business, while EU banks are absorbed in one crisis or another.

Let it Rain Money

During Corona, the cantons and their banks seem to have moved even closer together, and finance directors of the cantons decided that the institutions would continue to pay dividends, despite Finma's protestations. Last year, this resulted in a lucrative windfall, with cantons and municipalities benefitting from 2 billion Swiss francs in profit transfers, compensation for equity capital, dividends, state guarantee, and tax compensation. 

Still, the dog is not completely off of the leash. Proposals to give the institutions more entrepreneurial leeway have often run into opposition. In April, the cantonal parliament of Zurich wanted to have more say in the ZKBs dividend policy. 

The canton of Glarus, for its part, rejected a total revision to its cantonal bank law as requested by the Glarner Cantonal Bank. It aimed to reduce the Canton's shareholding quota and transform the bank into a public limited company under private law, with voters sticking with the status quo.