Swiss Banking in an International Context

288 Pages·1989·26.628 MB·English

by  W. Blackman (auth.)

SWISS BANKING IN AN INTERNATIONAL
CONTEXT
Also by W. Blackman
THE CANADIAN FINANCIAL SYSTEM
Swiss Banking in an
International Context
w.
Blackman
Associate Professor of Economics
The University of Calgary
Canada
Palgrave Macmillan
ISBN 978-1-349-10658-5 ISBN 978-1-349-10656-1 (eBook)
DOI 10.1007/978-1-349-10656-1
© W. Blackman, 1989
Softcover reprint of the hardcover I st edition 1989
All rights reserved. For information, write:
Scholarly and Reference Division,
St. Martin's Press, Inc., 175 Fifth Avenue, New York, N.Y. 10010
First published in the Uni ted States of America in 1989
ISBN 978-0-312-02813-8
Library of Congress Cataloging-in-Publication Data
Blackman, W. (Warren), 1923-
Swiss banking in an international contextfW. Blackman.
p. cm.
Bibliography : p.
Inc1udes index.
ISBN 978-0-312-02813-8
1. Banks and banking-Switzerland. 2. Banks and banking,
International. 3. International finance. I. Title.
HG3204.B56 1989
332.1'5'09494-dc19 88--33333
CIP
Contents
List of Tables vi
List of Figures vii
Foreword ix
Preface x
PART I THE BANKING PARADIGM
1 The Banks of Switzerland 3
2 Banking, an Industry of Confidence 28
3 Euro-Banking and the Swiss Banking Paradigm 54
4 Capital, Investment and the Swiss Banking Paradigm 78
5 The Swiss National Bank 104
PART 11 A THEORETICAL STRUCTURE OF
INTERNATIONAL BANKING IN
CONDITIONS OF INFLATION
6 An Analysis of Deposit and Credit Markets 127
7 Euro-Currencies and International Banking 152
8 Financial Markets and Government 174
PART III A WORLD OF FINANCIAL INSTABILITY
9 International Liquidity and Capital Markets 211
10 ConcIusion: Stability Midst Instability? 241
Notes and References 263
Bibliography 274
Index 276
v
List of Tables
1.1 Foreign investments of principal banking systems 15
1.2 Proportions of domestic and foreign liabilities (1984) 23
2.1 Growth of the Swiss Bank Corporation 45
3.1 The growth of loans to LDCs and servicing costs, 1970-80 67
4.1 Swiss liabilities (passive) by source, 31 December
1984 87
4.2 Swiss assets (active) by use, 31 December 1984 87
5.1 The Swiss monetary base for 1985 109
5.2 Sources and uses of liquidities (changes from 1983 to
1984) 117
9.1 Changes in extern al claims of banks and international
bond issues 217
9.2 Cross-border positions of banks 220
9.3 Domestic positions in foreign currency 221
9.4 Net international bank lending 221
9.5 Lending in international markets, 1985 222
9.6 Cross-border positions for 1985 228
9.7 New issues in international bond markets 237
VI
List of Figures
1.1 Gross domestic product and total assetslliabilities of Swiss
banks 23
1.2 Geographic distribution of assetslliabilities, 1984 24
1.3 Geographic distribution of assetslliabilities, fiduciary
accounts, 1984 25
2.1 Equating the value of society's marginal product with the
internal rate of return 32
2.2 Deposit roll-over to equate the internal rate of return 34
2.3 A collapse of liquidity between the credit market and the
deposit market 41
3.1 The costlrevenue banking construct 58
4.1 Protection against devaluation via the forward market 81
5.1 Comparative price changes, 1929-36 113
5.2 Comparative price changes, 1963-72 113
5.3 Comparative price changes, 1973-85 114
6.1 (a) and (b) Investment, interest, and the value of the
marginal product 130
6.1 (c) The credit market 131
6.2 Inflationlinterest equilibrium in the credit market 134
6.3 Inflationlinterest equilibrium in the deposit market 136
6.4 Deposit and credit markets 137
6.5 loteTest and exchange rates 141
6.6 Collapse of the US dollar exchange rate 143
6.7 Deposit and credit market equilibrium and administered
interest rates 146
7.1 The Euro-currency credit market function 158
7.2 Euro-currency borrowing 160
7.3 Euro-lending 162
8.1 Deposit market shifts with fixed exchange rate 179
8.2 The appreciation of the Swiss franc 180
8.3 Impact on the exchange rate of shifts in the credit
market 182
8.4 Transmission of inflation via liquidity transfer 183
8.5 Capital values and exchange rates 189
8.6 Rates of interest and exchange rates 190
8.7 A greater importance of the aftermarket 192
8.8 Relationships of inflation, interest, and exchange rates 194
vii
Vlll List o[ Figures
8.9 The Swiss paradigm 202
9.1 Deposit and credit markets with foreign intermediation 226
9.2 International deposit markets, world inflation rates,
interest rates and exchange rate stability 234
9.3 International credit markets, inflation rates, interest
rates, and exchange rates 236
10.1 Expected exchange rate depreciation vis-a-vis the US
dollar: instability of equilibrium in international capital
markets 256
Foreword
There are ample books on the subject of Swiss banks and their
somewhat suspect behaviour regarding foreign bank deposits of
dubious origins. We have seen the Iran Contra Affair, which involved
a Swiss bank account, and we know that there are many equally
unsavoury, though less publicised, examples of similar accounts.
Unfortunately for the Swiss banking industry, these te nd all too often
to be about the extent of the public's awareness of Swiss bankers.
Such examples are the me re tips of icebergs - visible enough, but
hardly representative of what lies underneath. It was to discover more
of wh at lies at the heart of Swiss banking and why it has been singularly
successful in a world of banking inadequacies that inspired this
particular study. The result of the effort, perhaps not so surprising to
the skilled observer of banking, is not that the Swiss banks have
reached such a high degree of excellence, but that the banking systems
of other nations have been inadequate to the task of moving deposits
among and between nations with a corresponding degree of security.
This book, then, is not just a discussion on Swiss banking but also a
theoretical analysis of international banking, the art of which has been
nearly perfected by the Swiss. In effect, it is an analytical survey which
utilises the Swiss as a case-study in banking technique. This was the
objective of the research involved; it was not to argue, as might appear
at first sight, that the Swiss are paragons of banking virtue. If
professional readers may learn from the Swiss experience as weIl as
their own, then the objective of the book will have been weIl served.
W. BLACKMAN
ix