Banking Crisis

Swiss Bankers Association Slams Referendum Bid To Tighten Bank Activity

Tom Burroughes Group Editor London 1 December 2015


A group that yesterday won a bid to hold a referendum imposing controls on commercial banks' freedoms has been condemned by the Swiss Bankers Association.

An economics group campaigning to stop commercial banks in Switzerland creating account money and prevent what it sees as dangerous amounts of debt has won the right to hold a referendum on the issue – prompting sharp criticism from the Swiss Bankers Association.

A group called the Swiss Association for Monetary Modernization, launched in 2011, says it wants to “solve the most severe malfunctions of the present money system”; it wants the government to be the only entity that can create money, both in cash and current account holdings. It launched its initiative in June, and has reportedly collected more than 105,000 signatures from voters – triggering a referendum. The signatures were formally presented to the Swiss parliament yesterday.

There have been other moves in the country to impose tight controls on financial systems; last year, a referendum – which was defeated – was held over whether the Swiss National Bank should be forced to hold at least 20 per cent of its reserves in gold.

“The Swiss Bankers Association firmly rejects the Swiss Sovereign Money Initiative, which was submitted today by its initiators. The initiative would increase the cost of mortgages and lending. Further to this, it would carelessly and irresponsibly put at risk jobs, tax revenues, the efficient and secure economic system, and Switzerland’s prosperity,” the SBA said in an emailed statement.

The proposals would make the management of money supply more complicated and bureaucratic and boost borrowing costs for all firms, hitting small and medium-sized firms hard, the SBA said. Jobs would be lost, and the Swiss financial sector would be hit by uncertainty, it continued. Depositors wold suffer lower interest on their savings; it will shrink the economy and hit tax receipts.

The SBA said the initiative was unnecessary because the country already has one of the most restrictive “too-big-to-fail” regimes in the world, with tough capital standards; there are protections for depositors. 

In an article on the SAMM’s website, Mark Joób, Professor at the West Hungarian University, Faculty of Economics and Researcher at the Institute for Business Ethics, University of St. Gallen, Switzerland, defended the “fundamental reform”. He is also member of the managing committee of the group.

“The aim is to give a governmental monetary authority the exclusive power to create money, both cash and current account holdings. Commercial banks would be prohibited from creating account money and restricted to give loans from money they have previously borrowed from customers,” Professor Joób wrote.

He said the current system has flaws, such as the fact that money is “created as debt” when commercial banks borrow from central banks and when governments and individuals borrow from commercial banks. As a result, the professor argued, the money supply of a country can only be maintained if private or public actors go into debt, creating the risk of excessive indebtedness and even bankruptcy.

He said the present system also means that the money supply is under private control, which he said is undesirable because investments that are publicly desirable will not necessarily win support. He said banking deposits are not safe in the present system, with commercial banks holding a low percentage of deposits as cash and reserves with the Swiss National Bank.

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