“Clarification and Education” column on citizen sponsorship: Subsidized UBS – let’s debate!

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Banks are considered the most powerful and free players in the big game of capitalism. Popular opinion. But there are two incorrect points in this and only one correct one.

First of all, talking about capitalism in Western countries with government quotas of around 50 percent is quixotic. And secondly, banks are not independent of the state, but are actually connected with the state: from it they receive the privilege of creating book money out of nothing. But one thing is true: banks are so strong that the state cannot allow a larger bank to go bankrupt – this would drag down other financial institutions and thereby jeopardize the entire national economy.

This means that the state bears responsibility. And responsibility here means a subsidy, because the state receives nothing for its enforcement. The state, in turn, means Mr. and Mrs. Swiss: taxpayers guarantee this without knowing it. Economist and IWP researcher Adriel Jost has calculated that annual implicit government subsidies to banks in Switzerland amount to about 30 billion francs. This is equivalent to nine times the amount of federal subsidies for agriculture – a huge amount.

The tricky part: after the CS takeover, UBS’s total assets are around CHF 1,700 billion. This is about the same as all other banks combined, approximately twice the total assets of the National Bank and more than twenty times the federal budget.

UBS is led by Sergio Ermotti, a new-old CEO who is as capable as he is familiar with the Swiss situation. But, of course, the head of UBS is loyal not only to Switzerland, but also to shareholders, and they are scattered around the world. Here’s why: It’s not the banker from Ticino, but the politicians who need to have a serious discussion about what Mr. and Mrs. Schweitzer are responsible for and what they are not.

Do we really want to be responsible for UBS’s business? Sergio Ermotti may be focusing on the secure asset management business, but what are his successors doing? Solution: More equity is required, from today (unweighted) from about 5 to 20 or 30 percent. Only then are the shareholders responsible, not Mr. and Mrs. Schweitzer.

Do we really want to vouch for the entire global UBS? Solution: The Federal authorities and the Federal Council must significantly expand their framework so that in the event of a crisis, the companies of the international UBS group can actually process transactions in the respective countries.

Do we really want to subsidize UBS – and other banks – so much? I think no. But what do most citizens think? Start the discussion!

René Scheu is a philosopher and managing director of the Institute for Swiss Economic Policy (IWP) in Lucerne. He writes to Blick every other Monday.

Source: Blick