#05-30
Negotiating Over Banking Secrecy: The Case of Switzerland and the European Union
Alexandre Ziegler, Francois-Xavier Delaloye and Michel Habib
Abstract: Over the period 2002 to 2003, Switzerland and the European Union (EU) were
engaged in negotiations regarding banking secrecy. The EU's stated goal was for
Switzerland to abolish banking secrecy. Switzerland refused and offered to impose
a withholding tax on interest income instead. The two parties eventually agreed on
the latter solution. We examine the effect of these negotiations on the share prices
of four Swiss banks: UBS, Credit Suisse Group (CSG), Julius Baer (Baer), and Vontobel.
Overall, investors believe that bank profitability will not be impacted by the
imposition of the withholding tax. The event-by-event response of the share prices
differs across banks. Whereas the two universal banks (UBS and CSG) primarily
react to the threat of sanctions on their EU-based operations, the private banks
(Baer and Vontobel) react strongly to events suggesting that banking secrecy might
be abolished.
Keywords: Banking Secrecy; Switzerland; Event Study.
JEL classifications : G14, G18, G21.
