Swiss banks used to be world-renowned. The nation has had a reputation for banking secrecy and international neutrality, making it a relatively safe place to store wealth. Unfortunately, the costs of Swiss banking might soon outweigh those benefits. As negative interest rates continue to permeate the Swiss economy, at least one bank has declined a customer’s request for a large cash withdrawal. This probably occurred at the direction of the Swiss National Bank (SNB).
The negative interest rates took effect at the central bank in January 2015 amidst a failing Russian economy and crashing oil prices. Private lenders have been forced to follow suit. Instead of paying interest on deposits, some now charge customers for the use of their money. This has been a huge blow to the fiscally responsible Swiss. Those with retirement funds and similar investments are now losing money by keeping it in the bank.
Further problems arose when one pension fund manager tried to avoid those losses. He wanted to withdraw his fund’s money from the bank and move it to a separate storage facility. That would save his clients 25,000 Swiss francs per year for every 10 million francs in the fund. Storing cash in an insured vault would still cost money, but it would be far cheaper than keeping it in the bank.
Withdrawal Request Denied
Somewhat unexpectedly, however, the bank denied this request and provided little explanation for the decision. A letter to the fund manager simply stated that his expectations could not be met within the specified time period. Many have speculated that the bank’s actions were spurred by a directive from the SNB. The central bankers might feel that large withdrawals could lead to a cash shortage and cause banks to fail. If that happened, Europe could face an even more serious economic crisis.
At least one banking expert has suggested that the bank’s refusal was clearly illegal. Even if the SNB did issue a directive, it should not have superseded the law. The fund manager’s contract dictated that he should have been allowed to withdraw his money at any time and the private bank should have been legally obliged to honor that request.
In the financial sphere, there are all kinds of deposits, and some do take time to mature, but the pension fund’s account was not like that. It was known as a sight deposit account. The SNB itself defines sight deposits as “Funds which can be transferred immediately and without restriction to another account or which can be converted into cash.” Based on that definition, the bank should not have been allowed to withhold the pension fund’s cash.
This news is so distressing to many because Switzerland is supposed to be one of the world’s most economically free countries. (Switzerland is ranked at number 5 and the United States is number 12.) If the Swiss government can start restricting withdrawals on a whim, how much worse could things end up in countries that are less free? This might be an important sign that the global economy is still precarious and securing wealth in trusted, physical assets is essential.