Swiss Bankers Association Chairman Pierre G. Mirabaud has said that the current financial crisis, which has ruined the reputations of many global banking institutions, is also an opportunity for others to learn lessons from. Addressing bankers on the occasion of Swiss Bankers Day on 18 September, 2008 on the theme - Crises are also Opportunities - Mirabaud said the good reputation of the Swiss financial centre remained intact and the financial commitments of foreign investors were a strong vote in favour of the quality of Swiss banking. Excerpts.

The financial crisis has now reached a new climax: a once-proud investment bank has had to close its doors; an insurance behemoth has rushed into the protective embrace of the US Federal Reserve; and the share prices of global financial institutions have reached a new low. In making my following remarks I don't want to be dictated to by the events of the moment; rather, I want to step back and take a cool look at the financial crisis as whole and peer beyond the hot news of today.

Many lines have already been written about what caused the crisis: inadequate risk management, false incentive systems and greed are some of the key words. Mistakes were made for which we are all paying heavily that is the bald truth. What disturbs me most is the way sane intellect was overtaken by a herd mentality, which is something the Swiss population cannot understand to this day.

It's easy to be wise after the event, and people are wondering why we did not see the crisis coming. For five years borrowing was practically free, investors blindly bought any high-yield instrument going, and banks financed buyouts on ever riskier terms, yet investors queued up anyway to take over the debt. Incentives were there to develop more and more complicated constructions, while all around there was collective denial of the actual risks. In summary, the system was awash with risks, but they were borne not by those best able to bear them, but by those who least understood them. The stability of the financial system was increasingly taken for granted. Banks lent more and more, even though they all knew this was unsustainable. And what happened next? What happened next was that the demand for certain types of bonds disappeared and the party came to an abrupt end, leaving a hangover that endures to this day.

Switzerland unfortunately did not escape this turbulence. Financial institutions that had enjoyed a long-standing reputation for solidity and reliability were forced to acknowledge that their risk management had failed. As a consequence, they made value corrections amounting to billions and had to strengthen their capital base. But despite the ongoing crisis, there are four things that give me confidence.

Firstly, the international reputation of the Swiss financial centre as a whole remains intact, despite prominent headlines to the contrary. In the international arena, Switzerland is not specifically associated with the crisis since many foreign banks are also affected by these problems. I wonder when we will finally stop continually doing ourselves down. Crises throw up opportunities, not just risks. Because for growth to take place, innovation is needed. And innovation always goes hand-in-hand with risk. Without wanting to downplay the current crisis, it follows that the whole system will learn lessons from it and will be stronger as a result. Secondly, unlike other countries, Switzerland was not forced to spend public money on saving any banks because new and existing shareholders came up with the extra equity needed.

Thirdly, it is a very good sign of the quality of Swiss banking that, given the circumstances, foreign investors were happy to inject the amounts they did. And last but not least, I'm proud of the many Swiss banks that were not directly affected by this crisis. The Swiss financial centre is healthy. The situation may still be difficult for the odd bank here and there, so it is even more important for the other banks to show their solidarity. This is absolutely no time for Schadenfreude.

So what are the lessons to be learnt from this crisis? First of all, it is vitally important for the Swiss financial centre to have a well-capitalized, crisis-resistant banking system at its disposal. This is especially true given the crucial role played by the two major banks in our banking system. However, Switzerland must not go it alone in terms of laws and regulations. What is really needed is a sense of proportion and international benchmarking. Global crises cannot be solved or prevented on a national level. Supervisory authorities around the globe were virtually blind to the crisis in the offing. To suddenly take measures after the event seems questionable to me. We would be well advised to start by examining how FINMA will fare in its new configuration. The second lesson is to examine and perhaps even raise the level of capital adequacy with a view to improving capital and liquidity management. This must, however, be done using a strictly risk-based approach and paying close attention to the international competitiveness of our banks. We should also keep a closer eye on the maturities match between assets and liabilities on balance sheets and evaluate them in a better way. The much-discussed leverage ratio is not a panacea to solve all problems. The Americans have been employing a leverage ratio for ages and still the financial crisis could not be warded off. The third lesson is to reconsider the incentives which banks incorporate in their remuneration systems, and which their supervisory boards should, if necessary, adapt. And as a private banker and entrepreneur myself, the fourth and final lesson is a moral, ethical one about the social responsibility each of us bears. This responsibility is all about standards, customs and traditions, and it should shape and guide all the things we do, and especially the things we do not do. But it is exactly this social control, which is crucial to harmonious coexistence in society that has suffered under the excesses of the past few years. Greed, egotism and thoughtlessness have been pushing aside moderation, the common good and consideration. Economic liberalization for example, our current system of a free global market brings enormous advantages. But it makes demands on the elite in this case the economy's leaders to show a healthy sense of responsibility and moderation. We need to learn the correct lessons from all this. It was not the system that failed, but a few participants in the system.

As the European football championships showed, Switzerland has seven million football coaches. And as the financial crisis showed, there are almost as many banking strategists. People who probably still make their payments at the post office started calling for banks to sever their connections with investment banking. I personally believe that global banks, especially those aiming to be successful in asset management in Asia, definitely need to offer investment banking to these clients. Investment banking should certainly be scaled back that is, it should be there to provide services for third parties, not to operate mainly in the hedge fund business. But even more importantly, this decision is not one for politicians, regulators, those who write letters to editors, newspaper columnists, or me the only people to take the decision are the supervisory boards that were elected by the owners, i.e. the shareholders. Before I move on to the next topic, I would just like to make a few personal comments on the unpleasant side effects of this financial crisis. I was deeply disappointed to see how as soon as the first problems in the global financial system emerged the usual suspects popped up to rail against the international financial sector and its practitioners, dealing out a Marxist-style polemic that often verged on personal insult. If the economy is doing well, it is thanks to others. But if it's doing badly, only the banks are to blame. These people defame an entire industry and ridicule a professional body in the media an industry, by the way, that contributes almost 10 percent of this country's prosperity and 16 percent of its tax revenues. Now taxes, of course, are charged on profits. But whenever these tax receipts are in danger of falling, the redistribution experts on the left are suddenly advocates of banks making large profits. It's a topsy-turvy world! It would nice if the left would structure the economic framework to help companies improve their earnings in different circumstances, too. But seriously: the deliberate malice exhibited by certain commentators demonstrates neither a great understanding of economics nor a respect for the truth. Instead, it is purely a product of the populist vote and attention-grabbing headlines. It may win votes and readers in the short term, but in the long term it damages our country, which owes a large part of its success to the success of the financial sector. It is especially in times of crisis that a sense of proportion is called for, and not panic-mongering. As professional bankers, we have no reason to be ashamed of ourselves; in fact, we can be proud of our contribution to the prosperity of Switzerland.

Privacy is still important
The year 2008 was not just an annus horribilis for the global financial industry. Indeed no in February this year it became very evident to one of the world's tiniest countries that its large neighbour wanted to assert its interests using constitutionally extremely dubious methods. Almost overnight after years of peace from the media banking secrecy returned to the international agenda of high-tax countries. Naturally enough, scarcely a day had passed before the spotlight also fell on Switzerland and its legal system. The media rolled out the red carpet for retired former finance ministers, and once again one of Switzerland's ruling parties could think of nothing better than to join forces with the EU against Switzerland's interests. But I'm not here to give euro-enthusiasts another reminder about how big EU countries treat small countries. No, I'm only concerned with the crucial question of how much privacy citizens can expect from their state. The people who, without batting an eyelid, haul off suspects at the crack of dawn in front of rolling TV cameras, who pre-judge them in the media and congratulate themselves on what they've achieved, are the same people who appear unconcerned at the fact that when it comes to fighting organised crime, investigating magistrates seem to have less power at their disposal than they have when they pursue cases of tax fraud or tax evasion. This is another example of a topsy-turvy world. Perhaps I put this a little sharply, but there seem to be European states where the hierarchy of offences is such that a suspected tax evader enjoys fewer rights than a potential terrorist or drugs dealer. And this situation alone should give food for thought to all those especially in our country who criticize our Swiss legal system as regards the criminalization of minor tax offences. I would like to continue living in a country where to loosely paraphrase Winston Churchill people can be sure that when the doorbell rings at six in the morning, it's the milkman and not tax investigators accompanied by TV cameras.

In order to determine the extent to which it is in the public interest to restrict privacy, we need to examine the different roles attributed to state and citizen. In Switzerland, the answer to this question derives from philosophers such as Rousseau and Jefferson, who thought that power was given legitimacy by the people and not the state itself. The state serves the citizen and not vice versa. It follows that preserving privacy is a fundamental principle. This political philosophy can also be extended to the current discussion about pursuing tax offenders. Our law makes a deliberate distinction between tax evasion and tax fraud and by the way it did this long before the EU came into being and this distinction is compatible with this political understanding. It expresses the relationship of trust between citizen and state and prevents the unnecessary criminalization of citizens when there other ways to implement the law.

No one would dream of abolishing the speed limit for German car drivers on Swiss motorways, just because there is no speed limit in Germany. But this is exactly the highly risky demand from the perspective of jurisprudence that is being made, again and again, of Switzerland's tax laws. "Just criminalize foreigners", we hear over and over again.

"Banking secrecy should continue to apply to the Swiss." Switzerland is a state founded on the rule of law and such a state does not deviate from the principle of treating native citizens and foreigners alike. Switzerland has absolutely no justifiable interest in subjecting foreign customers to discrimination in our financial marketplace.

It is just as ludicrous to criminalize tax evasion for the sole purpose of making it qualify for international judicial assistance. Switzerland is a sovereign state based on the rule of law and it makes laws that are necessary and appropriate for our country, and not as an opportunistic response to demands from outside its borders. Switzerland's critics then go on to demand that the principle of dual criminality be dropped with regard to granting judicial and administrative cooperation. This would have far-reaching consequences for Switzerland's reputation and for confidence in our country as a financial centre. To a considerable extent, the fact that our financial marketplace has become the world's third largest asset management centre is because customers around the globe can trust in the reliability and stability of the Swiss legal system, which is not ruled by day-to-day political opportunism.

This year, commentators of all allegiances, diehard critics of our financial centre and even so-called experts are once again, in light of the clear increase in pressure from abroad, starting to play the Last Post for banking secrecy. I have the benefit unfortunately! of age and can still remember the 1977 Chiasso affair, the 1984 Banking Initiative and when the EU met in Santa Maria da Feira in 2000 and agreed to the exchange of information. Then, just as now, banking secrecy was given no chance of surviving. Ladies and gentlemen, they were wrong and we are still practicing it today. However, this crisis, which has largely been whipped up in the written and spoken media, brings Switzerland not only risks but also opportunities. To be specific, we have the opportunity to stand up in this almost Orwellian “Big Brother” world for the importance of privacy and by doing so, not pander to the data collectors in offices and parliaments but give the people what really matters to them.

Protecting privacy is quite simply a basic human need. It is not we Swiss who have to justify why we hold this principle in such high regard, but the other countries who should give their reasons for not doing so. Another example of a topsy-turvy world. Let us not be deterred. Protection of financial privacy is important and right, is firmly rooted within Switzerland, and is an opportunity and not a risk for Switzerland and the Swiss financial centre. And let us remind all our foreign critics once more: the electorate decides the future of banking secrecy in our country, not functionaries in Brussels, senators in Washington or OECD bureaucrats in Paris.