In his article on finews.first, Andrew Isbester comes up with a «very big maybe» when casting about for an answer.

This article is published on finews.first, a forum for authors specializing in economic and financial topics.

UBS’s forced rescue of Credit Suisse earlier this year has put the Swiss financial hub in unchartered waters. The short-term impact of the shotgun wedding instigated by the government appears to be a positive one. Quite clearly, talk of another imminent global financial crisis has cooled - if you don’t mistakenly wade into the darker recesses of certain social media.

Still, it will take years for the long-term impact to be fully felt. What it has done, however, is to leave the Swiss financial center with a major bank count of exactly one. Depending on how you look at it, this could be the first time that we know that this has happened in modern economic history. Whatever the case, the situation has undeniably left the hub in an ambiguous position. 

In truth, since the 17th century, there have not been all that many industry hubs, at least not major ones. You can count them all on the fingers of one hand give or take a digit here or there.

Rise and Fall

A 2018 University of Michigan study on the rise and fall of leading international financial centers published in the wake of the impact of Brexit listed them all out – Amsterdam, London, Paris, and New York, with Frankfurt, Berlin, and Tokyo coming in as near contenders.

The study, many points of which remain relevant, says four broad factors correlate with the rising and fall of each financial center. They are having trust in the center’s abilities, the country’s central banking and monetary systems, financial policy and regulation, and overall stability.

There are multiple dimensions when it comes to ability or expertise, according to Adam Church, the author of the study. Among them, they include that of the individual firms with certain transactions and the perceived know-how of the center itself based on the transactions the center has historically managed.

Specific Role

This is where it gets more complicated. Swiss finance, as an international financial center, has always played a specific role as an offshore hub for wealth. Setting aside volume and AuM for a moment, what you can say it the last seventy or so years it has grown to be one of the world’s most important in that regard.

In that context, having just one major institution may not be such a disadvantage given the large number of medium and small private banks and wealth managers. They may be able to have enough of a cluster effect to make up for the rarified space now at the top of the heap.

On the other hand, the study also maintained that a center’s connections to international markets are also important, and which was one of the factors behind London’s rise, for the second time, as the world’s leading financial center in the late 20th and early 21st century. 

Sizeable Loss

Here the takeaway is a more ambivalent one given that the center has undeniably lost a sizable interface to international markets with the demise of Credit Suisse, and it is unlikely that these can be directly replaced by smaller institutions.

When it comes to central banking and monetary policy, the implications of what the authorities undertook this year won’t be known for many years. 

But, going by the study, Switzerland ticks many of the necessary boxes that potentially guarantee the success of the finance hub for many years to come given it has a strong currency in the franc regarding the study’s second factor, monetary policy.

Internationally Recognized

For the third factor, policy and regulation, the author indicated that the ideal balance of the state in financial policy remains ambiguous. 

That plays into Swiss hands given it has an internationally recognized regulatory framework, even if it is a slight outlier in comparison with the major financial centers by being steadfastly principles-based, or more laissez-faire, than others. Having one or two major banks in that context is likely to be irrelevant.

The only challenge the Swiss regulator, Finma, is likely to face is an increasingly bifurcated supervision and oversight regime in the future, although that by itself could lead to unexpected challenges.

War and Crisis

Then there is the question of stability. The study maintained that it was a mix of war and economic crises that determined the rise and fall of financial centers. Here, again, the country has mostly managed to avoid both of those through much of this century as well as through the major European cataclysms of the 20th century.

The fact that the Swiss hub only has one major institution in that context is again not likely to be all that relevant. But the question of stability is also a double-edged sword as the exact opposite can be argued. Switzerland is the only center where the government had to step in and save both of its major banks, UBS in 2008 and now Credit Suisse, within a fifteen-year timespan.

That leaves us with a mixed answer. Having one major institution in a financial hub is not likely to have an immediate, or direct impact. At the same time, just viscerally, and from a historical perspective, it also does not seem like it is a very healthy overall profile for a very important economic sector.

Andrew Isbester, a Swiss-British dual citizen, is an editor-at-large for finews.asia and finews.com, living in Hong Kong for 14 years. He spent his formative years in a number of countries including Argentina, Brazil, the US, Belgium, and Scotland before returning to work in Switzerland in the 1990s and early 2000s as a correspondent and, subsequently, bureau chief for the international news agency «AFX News», which was part of «Agence France Presse» (AFP) and the «Financial Times». Following this, he worked in Zurich and Hong Kong for several major banks before resuming his activities as a journalist.

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