In a penultimate view of the history of Swiss banking, one important dimension is why the largest Swiss banks – UBS and Credit Suisse – are based in Zurich, rather than Geneva, Basel or Bern.
The largest town in Switzerland with a population of 400,000 people is tiny compared to London with its millions of people, but is one of the most predominant financial centres in the world thanks to the importance of Swiss banking.
The town wasn’t actually that big a deal until the mid-19th century when Switzerland had its last great battles in the form of a civil war.
The war only lasted for a month during November 1847, causing fewer than 100 casualties. Nevertheless, the civil war had a major impact on both the psychology and the society of the Swiss and of Switzerland, and convinced most Swiss of the need for unity and strength towards its European neighbours. Swiss people from all strata of society, whether Catholic or Protestant, from the liberal or conservative current, realised that the cantons would profit more if their economic and religious interests were merged.
The war ended with, in 1848, a new Swiss Federal Constitution being drafted that ended the almost-complete independence of the cantons and transformed Switzerland into a federal state.
At this time, one man led the call to make Zurich the economic and commercial centre of Switzerland, if not the capital, and his name was Alfred Escher.
Johann Heinrich Alfred Escher vom Glas, known as Alfred Escher, was a Swiss politician, business leader and railways pioneer. Thanks to his numerous political posts and his significant role in the foundation and management of the Swiss North-eastern Railway, the Swiss Federal Institute of Technology, Credit Suisse, Swiss Life and the Gotthard Railway, Escher had an unmatched influence on Switzerland’s political and economic development in the 19th century.
In 1844 he was elected to the Zurich Parliament and, as the country entered its civil war, he realised that the country had major issues.
Although it was one of the shortest and least bloody civil wars in the history of the world, the outcome left the country's economy in steep decline and poor harvests served to aggravate the situation.
Escher realised that the solution to these issues was to make Switzerland accessible as a commercial centre for Europe through the railroads.
“The rail tracks are approaching Switzerland, moving nearer on all sides. People are coming up with plans to route the railways around Switzerland. There is thus a danger that Switzerland will be entirely circumvented and that, in the future, it will be left with no option but to present to the world the sad face of Europe’s forgotten backwater.”
With these words, uttered in late 1849, Alfred Escher expressed his concern that modernity risked passing by Switzerland and he had good cause for such concern. At the time, the distances covered by railway tracks in Europe were steadily increasing and Switzerland was doing little to join in. The fate of the new Swiss Confederation established in 1848 became inextricably bound up with the advent of the railways. There was basic agreement on the need for railways, but precious little agreement on how or where they should be built. In 1852 Escher helped push through a railway law drafted entirely in line with his own vision: railway construction and operation would be left to private companies.
This led to a railway boom in Switzerland.
Within a very short space of time competing railway companies were set up, including in 1852-53 the Swiss North-eastern Railway with Escher at its helm. In this way the Swiss rapidly closed the gap in rail-related knowledge and technology between themselves and foreign operators, and became one of the leading railway nations of the world.
For example, the average Swiss citizen travels 1,751 kilometres by rail every year. No other country comes near this figure. In neighbouring France, the average is 1,203 kilometres, while in Austria it is 1,008, in Germany 842 and in Italy 811.
Switzerland is also the land of tunnels and bridges: it has a total of 671 tunnels and over 6,000 bridges. The railway network extends to more than 5,000 kilometres. This means that Switzerland also has the densest network.
Most of this is thanks to the vision of Alfred Escher.
One of his most ambitious projects was the construction of the Gotthard Tunnel.
This was a huge challenge – building a 15 kilometre long tunnel through the mountains – but was key to enable Switzerland to connect is Northern and Southern borders. Without such access, Switzerland would still be a country where the Germans, French and Italian borders would be divided. With the opening of the Gotthard tunnel in 1882, these issues were overcome.
That is not to say that Escher was appreciated for this vision.
For example, as with most large projects, the construction phase was hampered by a variety of problems, leading to a budget overrun of around 11%. Escher was exposed to increasingly vociferous criticism, prompting him to resign as chairman of the Gotthard Rail Company in 1878.
When the builders of the Gotthard tunnel broke through in 1880, he was not invited to attend. Following on from this, in 1882, the Gotthard project was finally completed and the tunnel was opened ceremoniously. This time, Escher was invited but unable to attend the opening celebrations because of poor health.
So why am I telling you about a man who was a politician and railway pioneer?
Because he was also the man behind Credit Suisse, one of the largest banks in Switzerland which, like UBS, is headquartered in Zurich.
Credit Suisse was founded in Zurich by Alfred Escher in 1856 and is the oldest of Switzerland’s major banks, playing a decisive role in financing the industrialisation of Switzerland particularly railway construction.
As mentioned, the financing of the railroads was wholly from private sources rather than public funding, and Escher’s influence was to launch the bank to fund the railways.
When he launched Credit Suisse, he offered shares to the public. Expecting to sell around 3 million shares, he got a shock when 218 million were purchased in the first three days of the share offering.
Credit Suisse then spun-off Swiss Life in 1857 and, in 1863, Swiss Reinsurance, now Swiss Re.
In other words, the financial centre of the world was created by a culture of independence, neutrality and privacy, and then fuelled by the need for commerce and trade through the railways.
A final piece of the Swiss bank puzzle is UBS of course, the Union Bank of Switzerland.
UBS is the other major Swiss bank, merging with its biggest rival SBC, the Swiss Bank Corporation, in 1998.
UBS began life in 1862 in the town of Winterthur, near Zurich.
It was a small bank until the Second World War, when Alfred Schaefer arrived on the scene. Schaefer led the bank through the golden years of Swiss Banking from 1953 to 1976, acquiring 20 banks during his tenure and seeing the balance sheet rise 100-fold and the staff numbers grow from 500 to 12,000.
I could spend more time on history, but would rather say that you can read this history on Wikipedia and other places.
The real reason for writing this piece is that Alfred Escher is the father of modern Swiss banking, building upon its roots of independence, neutrality and privacy. His vision of connecting Switzerland to all of Europe through the railways is one that still sits heavily over Swiss banking today.
His statue in Zurich’s main town square by the train station continues his presence and wherever you go in Switzerland, Escher’s legacy remains.
Alfred Escher's statue erected in 1889 sits mightily over Zurich's main town square
This is the fourth in a five-part series on Swiss Banking:
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...