TAX NEWS - JUNE 2010
Switzerland Tax: Switzerland's 'Discontent' Lawmakers Plan to Tackle Bank Rules
During their three-week session that started May 31, lawmakers in Bern probably will approve the handover of thousands of UBS AG account details to the U.S. In turn, they may today ask for measures to restrict bankers' bonuses and limit lenders' risk to shield the economy from a future banking collapse, according to comments from politicians, including Social Democrat Christian Levrat.
UBS and Credit Suisse Group AG each have assets of more than 1 trillion Swiss francs ($863 billion), twice the size of the economy and a source of unease for a country that relies on the perception of stability to attract wealthy investors. Lawmakers have stepped up calls for tougher banking rules since UBS in 2008 was forced into a government-led bailout after piling up losses from subprime mortgage investments.
"There's a lot of discontent with UBS," said Georg Lutz, a professor of political science at the University of Lausanne, Switzerland. "Previously, banks were left in peace as long as they earned astronomical profits. Now there's a clear swing of opinion from the liberal dogma towards attempts to gain more control, but it will still be difficult to push through."
Bankers' Pressure
Upper-house lawmakers today are likely to bow to pressure from bankers by approving the government's settlement with the U.S. over tax evasion. The agreement requires Switzerland to turn over details on as many as 4,450 UBS accounts to the Internal Revenue Service after the lender faced a lawsuit over aid to suspected tax evasion.
Some lawmakers have linked their support to measures including changed taxation on bankers' bonuses or threatened to ask for a public vote on the accord. Swiss Economy Minister Doris Leuthard said yesterday a referendum would be "embarrassing" for the country.
Daniel Kuebler, a political science professor at the University of Zurich, said the near-collapse of UBS united political parties in their attempt to toughen financial rules and may force the government to give in to their demands or face the possibility of a referendum and more delays.
"Lawmakers always thought that banks respect the rules," Kuebler said. "The financial crisis and the dispute with the U.S. over tax evasion came as a bit of a rude awakening. They're now asking themselves whether they were too lax."
A parliamentary panel on May 31 criticized the government's handling of the UBS rescue and its client-data crisis, saying the seven-member Cabinet was badly informed and left the initiative to the financial-market regulators.
Far-Reaching Consequences
The government "underestimated the far-reaching consequences of this conflict for Switzerland as a financial center for too long and deprived itself of any scope of action whatsoever," the panel said in the report. The political leaders "didn't assume their collective responsibility."
Jean-Pierre Roth, then chairman of the Swiss National Bank, told the government in January 2008 that UBS was in serious trouble because of the U.S. subprime crisis, according to the account given by the panel. On Sept. 21 that year, days after the collapse of Lehman Brothers Holdings Inc., the SNB and the ministers were told that UBS needed public support "fast," the committee said.
"It took only a few days for the difficulties besetting UBS to become so serious that the bank's survival was under threat," it said.
The lower house is scheduled to discuss the U.S. tax treaty on June 7 as both chambers try to find a compromise. Lawmakers are also scheduled to debate a proposal about the possible breaking up of banks in a crisis situation on the following day.
"It's still unclear what proposals will win a majority in parliament," Lutz said. "The financial industry is very important to the economy. At the end of the day, there's no interest in significantly weakening that position."
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