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Back Matter

Benedicte Christensen
Published Date:
July 1986
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    Appendix I Statistical Coverage

    The analysis of international financial transactions of Switzerland is constrained by the lack of statistics. A particular shortcoming is the nonexistence of historical data on the capital account of the balance of payments. Estimates on flows of the banking sector have been derived from the stock figures of the annual balance sheets of banks. The derived flow data give an imprecise picture because of valuation adjustments, etc. Capital flows for the nonbank sector have been derived as a residual from the estimates of the current account, changes in stock figures for banks, and changes in official reserves. Any error in these magnitudes would therefore be mirrored in the residual.

    In 1983, the Swiss National Bank began publishing quarterly current account estimates. At the same time, it started the preparation of capital account statistics after the legal foundation had been established in 1980 and 1982 that permitted the Swiss National Bank to collect information on financial transactions of the private sector. The capital account of the balance of payments was published for the first time in October 1985 with data beginning from 1983.49 The statistics have considerably improved the scope for analyzing international capital transactions. The errors and omissions, however, are still sizable (4–5 percent of GNP), suggesting that the current account surplus is underestimated or net capital inflows are underrecorded.

    The main source for external capital transactions used here is the annual balance sheets of banks and finance companies, which provide a detailed breakdown of banks’ foreign assets and liabilities by type of asset and, in part, maturity and currency. In addition, a country breakdown of foreign assets and liabilities as well as of fiduciary accounts is published. Another important source of information is the monthly statistics on approved medium-term and long-term capital exports comprising (a) banks’ export and finance loans, (b) foreign bond issues, and (c) notes, which amount to above SwF 10 million.

    Table 14.Balance of Payments of Switzerland(In millions of Swiss francs)
    Current account balance4.1–
    (In percent of GNP)(2.5)(–0.5)(2.5)(3.9)(3.8)(4.0)
    Capital account balance1–17.4–15.2
    Of which:
    Direct investment–0.4–1.5
    Portfolio investment–8.4–7.0
    Other long-term capital0.80.6
    Other short-term capital0.1–4.3
    Precious metals–5.50.5
    Errors and omissions10.19.8
    Valuation adjustment of net foreign assets of Swiss National Bank1.02.7
    Changes in net foreign assets of Swiss National Bank–1.8–6.2
    Source: Swiss National Bank, Monatsbericht (Zurich, October 1985).
    Appendix II
    Chronology of Restrictions on Capital Flows(Position on January 1, 1979, and subsequent changes)
    1. Decrees of July 5, 1972 and April 16, 1973 subjecting borrowing abroad to license
    Position on:
    January 1, 1979:Borrowing abroad by Swiss residents (nonbanks) is subject to license.
    May 31, 1979:Lifted.
    2. Decree of July 5, 1972 (with later amendments) concerning foreign exchange positions of the banks
    Position on:
    January 1, 1979:Total foreign exchange liabilities of banks has to equal the total of foreign exchange assets by the end of each day.
    May 31, 1979:Lifted.
    3. Decree of November 20, 1974 (with later amendments) concerning inflow of foreign capital
    a. Ban on interest payments
    Position on:
    January 1, 1979:Bank deposits and fiduciary accounts of nonresidents (including foreign official monetary institutions) denominated in Swiss francs are not permitted to carry interest rate.
    Exception: deposits outstanding as of October 31, 1974 and new deposits up to a maximum of SwF 20,000.
    February 21, 1980:The Federal Government lifts the ban on the payment of interest on nonresidents’ Swiss franc time and savings deposits (including fiduciary accounts in Swiss francs) with a maturity of at least three months. In addition the Swiss National Bank authorizes interest payments on foreign central banks’ deposits with maturities of at least six months.
    March 11, 1980:The Federal Government permits the payment of interest on Swiss franc deposits of nonresidents with maturities of at least three months.
    August 31, 1980:Lifted.
    b. Negative interest rate
    Position on:
    January 1, 1979:A 10 percent negative interest rate a quarter is levied on all deposits in Swiss francs of nonresidents exceeding the balance of October 1974 plus SwF 100,000.
    Exemption: deposits below SwF 100,000 for nonbanks and SwF 250,000 for banks.
    November 1, 1979:The negative interest rate is reduced to 2.5 percent a quarter.
    December 1, 1979:The penalty is reduced to zero.
    August 31, 1980:Cancelled.
    c. Ceiling on forward sales of Swiss francs to nonresidents
    Position on:
    January 1, 1979:The ceiling on forward sales of Swiss francs with a maturity of up to 10 days to nonresidents is 20 percent of the outstanding amounts of October 31, 1974. For forward sales with a longer maturity the ceiling is 40 percent of the amounts outstanding on October 31, 1974.
    September 18, 1979:The ceiling on forward sales of Swiss francs with a term of at least 11 days to nonresidents is raised from 40 percent to 50 percent of the amounts outstanding on October 31, 1974.
    February 21, 1980:The ceiling on forward sales of Swiss francs to nonresidents is raised from 20 percent to 40 percent of the amounts outstanding on October 31, 1974 for contracts with a term of up to 10 days and from 50 percent to 80 percent for contracts with a term of 11 days or more.
    March 11, 1980:The Swiss National Bank removes limits on the forward sale of Swiss francs to nonresidents introduced in November 1974.
    4. Decree of January 22, 1975 concerning the sterilization of the proceeds from intervention on the foreign exchange market of January 22, 1975
    Position on:
    January 1, 1979:The Swiss National Bank is entitled to neutralize the Swiss franc proceeds from intervention in the foreign exchange market by blocking the proceeds to the account of the selling partner without interest payment.
    May 31, 1979:The decree is lifted without ever having been used. 5. Decree of February 27, 1978 concerning imports of foreign bank notes
    5. Decree of February 27, 1978 concerning imports of foreign bank notes
    Position on:
    January 1, 1979:Imports of foreign bank notes of more than the equivalent of SwF 20,000 a person and a quarter is not allowed, except by special authorization of the Swiss National Bank.
    January 24, 1979:Lifted.
    6. Decree of February 27, 1978 concerning foreign acquisition in domestic securities
    Position on:
    January 1, 1979:Private persons or companies residing in Switzerland are not allowed to sell domestic securities to nonresidents. A nonresident is only allowed to buy domestic securities from a bank for an amount equivalent to the proceeds of sales of domestic securities.
    January 24, 1979:Lifted.
    1. Articles 7 and 8 of the Banking Law of November 8, 1939 and March 11, 1971
    Position on:
    January 1, 1979:Public bond issues, notes, and bank credits to nonresidents are subject to approval by the Swiss National Bank, if the amount exceeds SwF 10 million (notes: SwF 3 million) and the maturity is one year or longer. Short-term foreign lending of banks and capital exports of Swiss nonbanks are liberalized.
    Nonresidents are allowed to buy a maximum of 50 percent of the proceeds from borrowing by other nonresidents. That half of the proceeds which is denominated in Swiss francs has to be converted to dollars at the Swiss National Bank and the other half to convertible currencies in the private market.
    A maximum of SwF 100 million a public bond issue is in force; there is no limit for notes.
    January 29, 1979:Quota regulation of placement is lifted.
    June 8, 1979:The obligation to convert the proceeds from borrowings in Swiss francs into other currencies is terminated.
    September 1, 1980:Conditions for capital exports are revised: rules for placement of notes are liberalized; access to the use of multicurrency clause is made easier; the permission of foreign central banks to buy notes and participate in credits is required.
    January 1, 1982:The Swiss National Bank stops making an issue program for foreign bond issues but continues coordinating the issues.
    July 1, 1982:The secondary market trading for notes is liberalized. The trading, which was confined to banks participating in issuing syndicate, is made completely free.
    November 11, 1982:Foreign investors are allowed to participate as sub-underwriters, if they are not mentioned publicly.
    January 1, 1984:The queuing system under which a limit of three issues a week was imposed on foreign bond issues is eliminated and the maximum amount of an issue is raised from SwF 100 million to SwF 200 million. The Swiss National Bank informs, on request, the leading issuing banks of the number, magnitude, and dates for approved borrowings to avoid bunching of issues.
    January 18, 1984:The deposit requirement for medium-term notes is modified. In addition to the issuing bank and the members of the issuing syndicate, SEGA (Swiss Security Clearing Organization) can now act as a custodian for notes.
    May 15, 1985:The ceiling on the amount of public bond issues (SwF 200 million) is lifted.
    Appendix III
    Table 15.Taxes Affecting International Portfolio Movements
    Federal Republic of GermanyJapan1SwitzerlandUnited Kingdom2United States
    (In percent of interest income)
    Withholding tax for nonresidents3
    Shares2520355 or 15430
    Domestic bond issues2035305
    Foreign bond issues620307
    Bank deposits203530
    (In percent of transaction value)
    Other taxes on transactions on securities
    Stamp/turnover tax0.2590.01–0.550.15 or 0.3010Bearer bonds:—(e.g., Eurobonds)11
    Shares and registered bonds (mainly convertibles): 112
    Source: National sources.Notation: n.a. = not applicable
    Table 16.Restrictions on Foreign Bond Issues
    Federal Republic of Germany1JapanSwitzerland2United Kingdom3United States
    Unit of denomination
    National currencyn.r.n.r.n.r.n.r.n.r.
    Foreign currencyn.r.n.r.n.r.n.r.n.r.
    Composite units
    (e.g., ECU, SDR)n.r.n.r.n.r.n.r.n.r.
    Minimum required maturity
    Public bonds5 years for DM issues7–15 years for yen issues8 years5 yearsn.r.
    Private placements3 years for DM issues18 months5 yearsn.r.
    Early permitted repayment
    Public bondsn.r.After 5 yearsAfter 5 yearsn.r.
    Private placementsn.r.After 18 months but not before half of the maturity has elapsedAfter 5 yearsn.r.
    Maximum limit on individual issue
    Public bondsn.r.¥10–30 billion for private issues4n.r.n.r.n.r.
    Private placementsn.r.n.r.n.r.n.r.
    Authorization requirementRegional and international development banksAuthorization is requiredIssues at and above SwF 10 millionSterling and Euro-sterling issues are subject to timing consent by the Bank of Englandn.a.
    Institutions operating in securities market
    New issuesBanksSecurities firmsBanks, finance companies, otherBanksInvestment banks
    Secondary marketBanksSecurities firmsBanks0, finance companies, brokers, otherBrokers, jobbersBrokers, dealers
    Futures, options, and swapsBanksn.a.Banks, finance companiesBrokers, banks
    Sources: National sources.Notation: n.r. = no restrictions n.a. = not applicable

    Eken (1984).

    Swiss neutrality as it exists at present developed through centuries. It was recognized formally by the European powers in the Congress of Vienna (1815).

    In 1952, German firms that had their assets held in Switzerland confiscated were indemnified.

    International Monetary Fund, International Financial Statistics; foreign exchange reserves include foreign exchange from swaps with the private banks. The market price for gold in London in 1985 on average (US$317 a fine ounce) has been used to calculate the value of gold holdings at the end of 1985.

    Since 1981, when a new law on bank secrecy took effect in Luxembourg, the regulations concerning bank secrecy in Luxembourg and Switzerland have been almost identical. In cases of inheritance, however, Luxembourg banks are not allowed to disclose information on foreign-owned accounts to heirs, in contrast to Swiss banks.

    Violators may be punished by a prison term up to six months and a fine of up to SwF 50,000.

    Meier (1983).

    The “big banks” in Switzerland, as defined in the Swiss banking statistics, consist of five banks. Three banks (Credit Suisse, Swiss Bank Corporation, and Union Bank of Switzerland) clearly have the character of large, universal banks, while two others (Bank Leu and Swiss Volksbank) are smaller and engage in more limited activities.

    Many cantonal banks are prohibited from engaging actively in international finance by cantonal laws.

    Fiduciary accounts are explained on pages 12–13.

    At the end of 1984, the Federal Banking Commission reported that reciprocity was guaranteed by the following countries, states, and territories: Austria, Belgium, Canada, Denmark, France, the Federal Republic of Germany, Hong Kong, Israel, Italy, Japan, Lebanon, Luxembourg, the Netherlands, Spain, the United Kingdom, and in the United States, the States of California, Connecticut, Florida, Illinois, Indiana, New York, Ohio, Pennsylvania, and Wisconsin.

    Separate supervisory organizations exist also in Belgium, Canada, France, the Federal Republic of Germany, and Sweden. The central bank has the responsibility for bank supervision in Italy, the Netherlands, and the United Kingdom, and in Luxembourg, the monetary institute (in the absence of a central bank) exercises supervision. In Japan, bank supervision is divided between the central bank and the Ministry of Finance, which has the formal responsibility. In the United States, bank supervision is shared between federal and state authorities, the Federal Reserve System, and special federal agencies.

    Eidgenossische Bankenkommission (1985).

    The Cooke Committee is formally known as The Group of Ten Committee on Banking Regulations and Supervisory Practices. It meets under the auspices of the Bank for International Settlements.

    At the end of 1984, the composition of banks’ capital was 37 percent paid-in capital, 45 percent published reserves, 13 percent hidden reserves, and 5 percent subordinated loans.

    Watson and others (1986).

    Eidgenossische Bankenkommission (1985).

    Lusser (1985).

    This implies an annualized interest cost of, for instance, 0.6 or 1.2 percent for transactions of three months’ maturity and 8.1 or 16.9 percent for transactions of one week’s maturity, when the debtor is a resident or nonresident, respectively.

    Corti (1983).

    Fiduciary accounts are excluded from the reportings of Swiss banks’ assets and liabilities to the international banking statistics of the Bank for International Settlements. But they are included in those of the Fund as presented in International Financial Statistics. In the Fund’s statistics, it is assumed that fiduciary assets of Swiss banks are claims on banks abroad, while fiduciary liabilities are to nonbanks abroad.

    The difference between notes and public foreign bond issues is explained on pages 17–19

    In 1984, Credit Suisse First Boston, which is owned, in part, by one of the big Swiss banks, was by far the most dominant lead manager in Eurobond issues, accounting for 16½ percent of the total value of Eurobond issues. In the second and third place were a U.S. bank and a German bank accounting each for 7½ percent of total issues.

    The figures mentioned here and in the following sections apply to “authorized” medium-term and long-term capital exports, which comprise all transactions of SwF 10 million and above of more than 12 months’ maturity.

    Bank for International Settlements, Annual Report (1985).

    Swiss National Bank, Monatsbericht.

    A typical currency swap transaction consists of, for instance, a U.S. company borrowing in Swiss francs on the Swiss capital market and the World Bank simultaneously borrowing in U.S. dollars on the U.S. market. The World Bank and the U.S. company then swap the liability and interest payments so that the World Bank incurs a liability in Swiss francs and the U.S. firm a liability in U.S. dollars.

    The Swiss National Bank has requested information on swap transactions by international development organizations.

    Euro-clear and CEDEL are international securities clearing houses formed by banks and securities dealers for the collective custody and book entry transfer of securities, notably Eurobonds.

    International development organizations, however, are still converting their borrowing proceeds with the Swiss National Bank.

    Lusser (1985).

    The existence of a ceiling on public issues compared with no ceiling on notes probably led to a switch from issues in public issues to note issues. The lifting of the ceiling was not expected to increase significantly the total value of foreign bond and note issues.

    During the same period, the deutsche mark also appreciated significantly.

    Swiss National Bank (1982), p. 230; see also Appendix I, Statistical Coverage.

    Capital controls during the period 1971–76 in Switzerland are described in greater detail in Baumgartner (1977).

    The bilateral exchange rate to the deutsche mark is particularly relevant for Switzerland, as the Federal Republic of Germany accounts for about 30 percent of Swiss merchandise imports and 20 percent of Swiss merchandise exports.

    Otani and Tiwari (1981).

    Deutsche Bundesbank (1985).

    International Monetary Fund (1985), Table 14.

    The country breakdown of Swiss banks’ assets and liabilities comprises assets and liabilities with banks located in Switzerland, thereby including assets and liabilities with Swiss banks’ branches abroad.

    Oil exporting countries, as defined by the Bank of England, comprise the 13 members of OPEC plus Bahrain, Brunei, Oman, and Trinidad and Tobago; Bank of England (1985).

    It has also been reported that an OPEC country bought promissory notes issued by the Swiss National Bank for the amount of SwF 500 million in mid-1981 at two-year maturity.

    Bank of England, Quarterly Bulletin (March, 1985).

    The figures in this section (unless otherwise indicated) relate to exposure of banks located in Switzerland and not to Swiss banks on a consolidated basis.

    The fiscal authorities at both the federal and cantonal level have accepted the 20 percent provisioning as tax deductible.

    Off-balance-sheet transactions accounted for about 57 percent of earnings of the big banks in 1984.

    A Swiss peculiarity is that interbank deposits with a maturity of above 12 months are also subject to withholding tax on interest. However, the withholding tax is refunded quarterly, thereby implying an administrative cost rather than a significant tax.

    The share of the stamp duty in total federal revenue has increased from 4.8 percent in 1980 to a projected 7.5 percent in 1985 (budget figure).

    Kommission fur Konjunkturfragen (1985).

    Occasional Papers of the International Monetary Fund*

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    5. Trade Policy Developments in Industrial Countries, by S.J. Anjaria, Z. Iqbal, L.L. Perez, and W.S. Tseng. 1981.

    6. The Multilateral System of Payments: Keynes, Convertibility, and the International Monetary Fund’s Articles of Agreement, by Joseph Gold. 1981.

    7. International Capital Markets: Recent Developments and Short-Term Prospects, 1981, by a Staff Team Headed by Richard C. Williams, with G.G. Johnson. 1981.

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    9. World Economic Outlook: A Survey by the Staff of the International Monetary Fund. 1982.

    10. International Comparisons of Government Expenditure, by Alan A. Tait and Peter S. Heller. 1982.

    11. Payments Arrangements and the Expansion of Trade in Eastern and Southern Africa, by Shailendra J. Anjaria, Sena Eken, and John F. Laker. 1982.

    12. Effects of Slowdown in Industrial Countries on Growth in Non-Oil Developing Countries, by Morris Goldstein and Mohsin S. Khan. 1982.

    13. Currency Convertibility in the Economic Community of West African States, by John B. McLenaghan, Saleh M. Nsouli, and Klaus-Walter Riechel. 1982.

    14. International Capital Markets: Developments and Prospects, 1982, by a Staff Team Headed by Richard C. Williams, with G.G. Johnson. 1982.

    15. Hungary: An Economic Survey, by a Staff Team Headed by Patrick de Fontenay. 1982.

    16. Developments in International Trade Policy, by S.J. Anjaria, Z. Iqbal, N. Kirmani, and L.L. Perez. 1982.

    17. Aspects of the International Banking Safety Net, by G.G. Johnson, with Richard K. Abrams. 1983.

    18. Oil Exporters’ Economic Development in an Interdependent World, by Jahangir Amuzegar. 1983.

    19. The European Monetary System: The Experience, 1979–82, by Horst Ungerer, with Owen Evans and Peter Nyberg. 1983.

    20. Alternatives to the Central Bank in the Developing World, by Charles Collyns. 1983.

    22. Interest Rate Policies in Developing Countries: A Study by the Research Department of the International Monetary Fund. 1983.

    23. International Capital Markets: Developments and Prospects, 1983, by Richard Williams, Peter Keller, John Lipsky, and Donald Mathieson. 1983.

    24. Government Employment and Pay: Some International Comparisons, by Peter S. Heller and Alan A. Tait. 1983. Revised 1984.

    25. Recent Multilateral Debt Restructurings with Official and Bank Creditors, by a Staff Team Headed by E. Brau and R.C. Williams, with P.M. Keller and M. Nowak. 1983.

    26. The Fund, Commercial Banks, and Member Countries, by Paul Mentre. 1984.

    27. World Economic Outlook: A Survey by the Staff of the International Monetary Fund. 1984.

    28. Exchange Rate Volatility and World Trade: A Study by the Research Department of the International Monetary Fund. 1984.

    29. Issues in the Assessment of the Exchange Rates of Industrial Countries: A Study by the Research Department of the International Monetary Fund. 1984

    30. The Exchange Rate System—Lessons of the Past and Options for the Future: A Study by the Research Department of the International Monetary Fund. 1984

    31. International Capital Markets: Developments and Prospects, 1984, by Maxwell Watson, Peter Keller, and Donald Mathieson. 1984.

    32. World Economic Outlook, September 1984: Revised Projections by the Staff of the International Monetary Fund. 1984.

    33. Foreign Private Investment in Developing Countries: A Study by the Research Department of the International Monetary Fund. 1985.

    34. Adjustment Programs in Africa: The Recent Experience, by Justin B. Zulu and Saleh M. Nsouli. 1985.

    35. The West African Monetary Union: An Analytical Review, by Rattan J. Bhatia. 1985.

    36. Formulation of Exchange Rate Policies in Adjustment Programs, by a Staff Team Headed by G.G. Johnson. 1985.

    37. Export Credit Cover Policies and Payments Difficulties, by Eduard H. Brau and Chanpen Puckahtikom. 1985.

    38. Trade Policy Issues and Developments, by Shailendra J. Anjaria, Naheed Kirmani, and Arne B. Petersen. 1985.

    39. A Case of Successful Adjustment: Korea’s Experience During 1980–84, by Bijan B. Aghevli and Jorge Marquez-Ruarte. 1985.

    40. Recent Developments in External Debt Restructuring, by K. Burke Dillon, C. Maxwell Watson, G. Russell Kincaid, and Chanpen Puckahtikom. 1985.

    41. Fund-Supported Adjustment Programs and Economic Growth, by Mohsin S. Khan and Malcolm D. Knight. 1985.

    42. Global Effects of Fund-Supported Adjustment Programs, by Morris Goldstein. 1986.

    43. International Capital Markets: Developments and Prospects, by Maxwell Watson, Donald Mathieson, Russell Kincaid, and Eliot Kalter. 1986.

    44. A Review of the Fiscal Impulse Measure, by Peter S. Heller, Richard D. Haas, and Ahsan S. Mansur. 1986.

    45. Switzerland’s Role as an International Financial Center, by Benedicte Vibe Christensen. 1986.

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