The economic importance of banks
Banks are the beating heart of a functioning economy. They connect people who want to invest their money safely with those seeking capital for new ideas, investments or corporate projects. As well as offering advice on all financial matters from founding a company to buying a home or setting money aside for retirement, they also ensure that day-to-day payment services work smoothly.
We all come into contact with banks, either directly or indirectly, as we go through life – usually on a daily basis. This has been the case since ancient times, when businesspeople exchanged money or lent it out against collateral or interest, thus promoting trade and economic growth. However, the importance of banking extends far beyond the individual. Banks create jobs, encourage innovation and play a decisive role in terms of economic stability and output. Switzerland is an outstanding example of an economy that benefits considerably from its interaction with finance, significantly increasing its prosperity and global competitiveness.
What do banks do?
Banks assume a central role in capital intermediation by bringing the supply of capital and demand for it together. They take care of customers’ savings and provide loans to households and businesses. Lending involves creating money because banks only need to hold a portion of customer deposits in reserve to cover what they lend. The Swiss National Bank (SNB) harnesses this money creation process to implement its monetary policy.
Before approving loans, banks carefully check the customer’s creditworthiness and collect relevant information, reducing information asymmetry and ensuring that capital is allocated efficiently. This is especially important for small and medium-sized enterprises (SMEs), which rely on bank loans to fund their capital expenditure. More information on banking services for SMEs can be found here.
Banks perform several key transformative functions that are essential to the supply of capital and the management of risk. Lot size transformation involves bundling a large number of smaller deposits in order, for example, to underpin larger loans that fund capital expenditure. Maturity transformation, meanwhile, makes it possible to reconcile investments and loans with differing durations. Finally, risk transformation reduces the risk to which individual investors are exposed and makes it easier to achieve a balanced portfolio diversification.
Banks plan, invest and monitor their customers’ assets with a view to generating a reasonable return in line with their individual risk profile. To this end, bank staff apply their specialist know-how and experience as well as a wide range of investment strategies and provide customers with professional advice on every aspect.
Banks make sure that day-to-day payment services work smoothly, including account transfers, card payments and automated bookings as well as connections to international capital markets. These are being continually improved, for example with the introduction of instant payments and work on digital currencies. Banks also keep payments and capital flowing across national borders thanks to their links to the international capital markets, embedding the Swiss economy firmly in the global financial system.
Banks offer all-encompassing advice on the full range of financial topics at every stage in a customer’s life, from mortgages and corporate finance to investment planning, pensions and inheritance. The aim here is to give customers a sound basis for making decisions and meet their individual needs.
Substantial contribution to economy and society
Banks account for around 3.7% of Switzerland’s annual gross domestic product (GDP). Their nominal gross value added amounts to an average of CHF 32 billion, meaning that banking is one of the country’s most lucrative industries. Banks also pay some CHF 7 billion a year in tax, which helps to fund government expenditure and contributes significantly to economic prosperity and social stability.
Important employer
Employing around 95,000 people directly in Switzerland, banks make up approximately 2.2% of the national workforce. The bank services sector as a whole employs around 160,000 people. Indirect effects via IT service providers, consulting firms and suppliers, for instance, create one extra job outside the sector for each of these, bringing the total number employed directly and indirectly to some 330,000. Furthermore, banks offer attractive career pathways as well as in-depth training programmes and play a vital role in career development for specialists and in knowledge transfer.
Innovation and ecosystem
Banking has close ties to Swiss industry. Banks secure financing for export-oriented SMEs and multinational corporations alike. They also promote innovation, support start-ups and invest in promising technologies, digital payment systems and state-of-the-art market infrastructures such as the successful mobile payment app TWINT. These close ties strengthen Switzerland’s competitiveness as a place for doing business, make investment easier and underscore the country’s role as an international centre of innovation and finance.
Links & Documents
These studies place the industry’s development in an economic and social context and highlight its role as a mainstay of the national economy and an international leader.