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61ST CONGRESS 1

2d Session

)

SENATE

/ DOCUMENT

No. 401

NATIONAL M O N E T A R Y COMMISSION

The

SWISS BANKING LAW
Study and Criticism of the Swiss Legislation
respecting Banks of Issue, and especially of the
Federal Act of October 6, 1905, concerning

THE SWISS NATIONAL BANK

By
DR. JULIUS LANDMANN

LIBRARY
Washington : Government Printing Office : 1910

NATIONAL MONETARY SYSTEM.

NELSON W. ALDRICH, Rhode Island, Chairman.
EDWARD B. VREELAND, New York, Vice-Chairman.
J U L I U S C. BURROWS, Michigan.

J E S S E OVERSTREET, Indiana.

E U G E N E H A L E , Maine.

JOHN W. W E E K S , Massachusetts.

PHILANDER C. K N O X , Pennsylvania.

ROBERT \V. BONYNGE, Colorado.

THEODORE E . BURTON, Ohio.

SYLVESTER C. SMITH, California.

J O H N W. DANIEL, Virginia.

LEMUEL P . PADGETT, Tennessee.

H E N R Y M. TELLER, Colorado.

GEORGE F . BURGESS, Texas.

HERNANDO D. MONEY, Mississippi.

A R S E N E P. P U J O , Louisiana.

JOSEPH W. BAILEY, Texas.

ARTHUR B. SHELTON, Secretary.

A. PIATT ANDREW, Special Assistant to Commission.

TABLE OF CONTENTS.
Page.

Preface
CHAPTER I.—The Swiss banks of issue to t h e passing of t h e bank
act of March 8, 1881
II.—The development of the Swiss note-bank system under the
bank act of March 8, 1881
Section I.—Extent and direction of the development—Discount
policy
II.—Solvency
III.—Exchange policy
III.—The fight for t h e centralization of t h e note-bank system
Section I.—The new article 39 of t h e Federal Constitution
II.—The bills of 1894 and 1899
III.—The motions of Von Arx and Scherrer-Fuellemann—
The fiscal difficulty
IV.—The financial interest of the Cantons in the revenues
derived from the issue of bank notes
IV.—The federal law respecting t h e Swiss National Bank
Section I.—The bill presented by the Bundesrat June 13, 1904.
1. Character of t h e bank
(a) Bank capital
(b) Election of the bank authorities
2. Indemnification of the Cantons
3. Distribution of t h e net profits
4. The question of location
II.—The parliamentary discussion of the bill
1. The capital of t h e bank
2. Seat of t h e bank
3. Branch offices and agencies
4. Distribution of the net profits
5. Indemnification of t h e Cantons
6. Liquidation
III.—Legal content of t h e act
1. Legal and financial basis
2. Sphere of business activity
3. Administrative organization
4. Transitional dispositions
APPENDIX I.—Text of the act of October 6, 1905, respecting t h e
Swiss National Bank
A P P E N D I X 2.—References

5
9
30
30
50
64
82
82
91
no
125
133
133
134
136
138
139
150
152
157
164
170
176
177
179
182
183
183
187
190
202
204
238

APPENDIX 3.—The new Swiss central note bank, by Dr. Alexander
Erdely
3

239

PREFACE.
The following memoir is the result of m a n y years'
examination of the problems of the Swiss note-bank
system. In particular, t h e writer's articles in t h e Zeitschrift filr Volkswirthschaft,
Sozialpolitik
und
Verwaltung, 1903, No. 1, the Revue d'Economie
Politique,
1903, No. 12, and 1904, No. 1, and in m a n y issues of t h e
Neue Ziircher Zeitung, 1900, 1901, and 1903, have been
utilized in the preparation of this monograph. The
passing of t h e federal law of October 6, 1905, concerning
the Swiss National Bank gave the author the incitement
to subject these works to a thorough recasting, to arrange
t h e m in a systematic order of sequence, and to complete
t h e m b y adding an account of the parliamentary history
and of t h e contents of the law of October 6, 1905.
The solution of the Swiss bank-note problem not only
satisfies definite requirements of Swiss commercial life, b u t
is also of theoretical interest.
The principle, which was recognized in theory long ago,
t h a t t h e system of free banking, while suited to t h e early
stages, does not meet the requirements of the advanced and
matured state of the bank-note system, worked its way t o
t h e front all along the line in t h e course of t h e second half
of t h e nineteenth century, in actual legislation; nor is there
the slightest indication of a reaction from this view. On
the continent of Europe, Switzerland has been t h e country
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which, in its banking organization, has longest retained
t h e system of plurality of banks as well as, with certain
modifications, t h e system of freedom of issue, and t h e
causes and results of this bank policy appear t o me t o be
of the highest importance.
The recognition of the superiority of t h e central b a n k
system does not in any way involve an answer t o the
question whether the bank-note monopoly should be
exercised by the State itself, or whether it should be
transferred to a private bank. The great examples given
us b y foreign countries pointed to a central b a n k of issue
working with private capital; b u t a state bank appeared
to be more suited to the spirit of modern Swiss economic
policy; and the demand t h a t an economic function which
had been raised to a public monopoly should no longer be
allowed to remain in t h e hands of private capitalists found
as m a n y supporters on the one side as it had antagonists
on t h e other. The m a n y years' struggle between these two
tendencies reflects in an interesting m a n n e r a phase of the
social history of our time.
A third element which enhances t h e interest of the
Swiss bank-note question is its significance from t h e
standpoint of currency policy.
I t is generally known t h a t Switzerland has recognized
for a long time and in a steadily increasing measure the
disadvantage of its membership in t h e Latin coinage union.
If she has thus far not availed herself of her right to give
notice of termination, the explanation is no doubt to be
found in p a r t in the fact t h a t the favorable terms of the
liquidation clause of the Latin union permit her, without
6

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jeopardizing her own position, to postpone her separation
from the union until the moment when she is fully prepared to carry through a currency reform; but her backwardness is more particularly due to considerations
relating to banking policy. As often as the question of a
currency reform was discussed in the federal councils it
was acknowledged on all sides that the departure of
Switzerland from the Latin union and her adoption of a
gold standard was beyond doubt and was merely a
question of time, but that the necessary preparations
could not be commenced until the decentralized banknote system had been got rid of, and in its place had been
established a strong central bank which also offered, by
its discount and exchange policies, sufficient guaranties
that the reform would be successfully carried through.
The prevailing view among Swiss political economists is
that if Switzerland should adhere to her past currency
policy, even after the establishment of a central bank of
issue, and should not break off with her coinage allies on
her own initiative, even then only the solution of the bank
question will make it possible for her to await with serenity
the future development of the fate of the Latin union.

With the law of October 6, 1905, there appears to terminate the series of attempts which had been made by the
friends as well as the opponents of a real state bank, and
which vainly sought to secure the approval of the sovereign
people and the federal councils. As the result of a compromise this law meets the desire of business circles
to participate in the administration of such an institution
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and does justice to the financial interests of the Cantons,
as well as to the endeavor to devote to the welfare of the
people the profits of an enterprise enjoying a state
monopoly. There is no doubt that this latter object will
be better accomplished by this law of October 6, 1905,
than it would be through a continuation of the present
arrangement, which is in violation of the country's constitution, or through a revision of the constitution based
on an amendment of the Bank Act of 1881.
It now remains with the organizing power of Switzerland to give such a basis to the organization of the credit
system as is in conformity with the people's will. On
this, too, will depend the possibility of meeting the wishes
of those friends of a central bank who opposed the establishment of a national bank, but who have, nevertheless,
striven in their own way to serve the country's welfare.
T H E AUTHOR.
BASLE,

October, 1905

THE SWISS BANKING LAW.
CHAPTER

THE SWISS BANKS OF ISSUE TO THE PASSING OF
. THE BANK ACT OF MARCH 8, 1881.
The first epoch in the history of the Swiss bank-note
system, which starts with the beginning of its development
and ends with the adoption of the bank act of 1881, is
characterized b y an absolute lack of unity in its legal
regulation, as well as by the absence of any approach to
efficient control. Like the history of so m a n y other
departments of economic activity, t h e history of the Swiss
banks of issue teaches us t h a t management by cantonal
law—with all due deference to its importance even in our
time—is an impossibility in any case in which uniformity
is an essential requirement of economic intercourse.
The first bank authorized to isssue notes was the
Cantonal Bank of Berne, established in 1834; after t h a t
followed in quick succession the Bank of Zurich (1836),
the Bank of St. Gall (1837), t h e Bank of Basle (1844), and
in French Switzerland the Banque du Commerce (1845),
and t h e Bank of Geneva (1848). Legislation respecting
the bank-note system was left to the Cantons. I n general
these confined themselves to requiring a submission of the
bank's rules and regulations, and only in a few Cantons was
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a bank council appointed to superintend the note-issuing
banks. In no Canton was any special law passed with
reference to the note-issuing bank domiciled within its
jurisdiction; most of them satisfied themselves with laying
down certain legal requirements; and the approval of the
bank's rules—a proceeding necessary on the formation of
any joint-stock company—served eo ipso as a grant of the
power to issue notes.
Cantons.
Berne.
Zurich _ .
Lucerne _ _

Extent of issue of notes.

Cover for issue.

One-third of the issue must
always be cash in hand.
Forty per cent of the circulation
must be covered by specie.

The cantonal bank may issue notes
up to the total of its capital, private banks up to one-third of
their paid-up capital, and " L a
Caisse d'Amortissement de la
Dette Publique" up to twothirds of its authorized (dotation) capital.
Basle-Country The amount of the circulating notes One-third of the circulation shall
and sight drafts shall not exceed
be covered by specie and twothirds by bills.
10 per cent of the bank's capital.
Schaffhouse _ _ As the grand council may determine.
Fribourg

always keep 500,000 francs in
gold in its safes.
Argovie_ _
Thurgovie

Tessin

Vaud

NeuchateL

Up to one-half of the bank's capital.
Unlimited for the cantonal bank One-fourth of the issue must
always be cash in hand.
and 750,000 francs for the mortgage bank.
The total of the issue of notes and
liabilities at short sight shall not
exceed treble the amount of the
bank's capital.
A maximum of 12,000,000 francs One-third of the issue of the
cantonal bank and one-half of
for the cantonal bank.
the issue of private banks in
specie.
Double the amount of the bank's
capital.

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Law

I n Zurich, Berne, Lucerne^ St. Gall, Grisons, and Thurgovie t h e Canton was conjointly responsible for any
liabilities of its cantonal b a n k ; in Solothurn, where the
bank had a mixed character, the Canton was held responsible up to half the amount of the notes in circulation. In
most Cantons a special bank-note t a x was imposed, which
varied from one-half of i per cent to i per cent per
a n n u m on t h e issue of private banks, b u t the cantonal
state banks were mostly exempt from this tax. Only
Neuchatel did not impose a direct t a x on bank-note circulation, b u t t h e b a n k was obliged to hand over to t h e cantonal treasury 10 per cent of its net profit. The a m o u n t
of the issue of b a n k notes, and the manner in which it was
covered, was variously regulated in the several Cantons.
On account of this bank organization being devoid of
control and uniformity, it was very difficult to popularize
these b a n k notes, t h e security of which was doubted, not
without some reason. Outside their home Canton they
could either not be given in p a y m e n t at all or only at a
certain discount. The extent of t h e circulation of these
notes was t h u s only moderate. W i t h the Bank of St.
Gall it reached in t h e first years of its existence 180,000
to 350,000 florins in round figures; with the Bank of Zurich, 300,000 to 500,000 florins. The number of banks
issuing notes increased, however, much more rapidly t h a n
t h e extent of t h e circulation of the notes.
Number
of
banks.

Year.

Notes in
circulation.
Francs.

1848
i860
1862
1870

8
_

_____
_ _ _ ._

_ _
- II

15
16
24

7,000,000
10,000,000
13,000,000
18,000,000

Per capita
of notes in
circulation.
Francs.
3.48
3.98
4.91

6.76

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Among t h e institutions t h a t began to make use of the
right to issue notes there were concerns t h e n a t u r e of
whose entire business was incompatible with t h e carrying
on of a note-issue business upon correct banking principles. I t will suffice to draw attention to institutions
so little fitted to exercise t h e note-issuing power as t h e
Savings and Loan Bank of Nidwalden in Stans and, last,
b u t not least, t h e Caisse d'amortissement de la Dette
Publique du Canton de Fribourg. The freedom of t h e
banks was so complete t h a t even a private banker (the
firm of Marcuard & Co., of Berne) issued notes for a time
without hindrance, and only gave up this line of business
because it did not yield enough profit.
The security for t h e notes issued by these institutions
included hardly more t h a n a nominal specie reserve, and
consisted only in an extremely small measure of discounted bills and safe loans on collateral. I t consisted in
b y far t h e greatest p a r t of mortgage claims, of state bonds,
among which t h e Spanish bonds, carrying a high interest,
were especially favored, and also of industrial shares and
bonds difficult to negotiate and confined to a very limited
market. Some institutions, carrying on a pawnbroking
business, held t h e pawned articles as p a r t of t h e security
for their notes.
The first step toward introducing a healthier system
into these affairs was taken b y t h e adoption of t h e concordat, a result of t h e endeavors of Bank Manager Speiser, of
Basle. Under this agreement, m a d e in 1862, t h e solvent
banks pledged themselves to accept one another's notes in
payment, and started a kind of clearing and circulating
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Law

system among themselves. In arranging this concordat
the primary object was to put an end to a state of things
in which the notes of any bank were accepted only at a
discount outside its own Canton. The realization of this
object was, however, made as difficult as possible to the
concordat, owing to the antagonistic stand that was taken
against the concordat banks by smaller concerns in the
central and eastern parts of Switzerland, which were not
admitted to the concordat. Nevertheless, the conclusion
of this first concordat had an important effect, even beyond
its immediate sphere of action; it gave rise to the advocacy
of an idea which has ever since found strong supporters in
Swiss banking discussion, that of adapting the Scotch system to the needs of Switzerland. The aim that inspired
this first concordat is the same which all Swiss banks of
issue have since endeavored to promote, namely, that of
creating in the Swiss banking organization, side by side, a
number of participating, independent, and yet closely
united institutions, just as Switzerland is politically composed of a number of small and partially sovereign units.
Pictet was the first to give expression to this thought in a
formulated proposal to organize the existing note-issuing
banks in a "bank union" which should be conjointly responsible toward third parties, yet which should remain
independent as regards their rules of government and the
carrying on of their business.
Pictet, of Geneva, found an opponent in the person of
Burckhardt-Bischoff, of Basle, who favored the idea of
centralization of the bank-note system as early as about
1865. The proposals of Burckhardt-Bischoff were chiefly
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in t h e direction of withdrawing from the Cantons t h e
authority to grant concessions for t h e issue of notes and
conferring this authority on t h e federation, which in t u r n
would grant this right as a monopoly to a private jointstock company to be formed and whose by-laws would be
subject to t h e approval of the federal authorities. These
suggestions were not much considered at first, b u t t h e
events of t h e war of 1870 gave t h e impulse toward t h e
a t t e m p t to subject t h e Swiss bank-note system to federal
regulation. The entire lack of elasticity in t h e Swiss
bank-note circulation, coupled with t h e fact t h a t t h e
policy pursued b y t h e banks was radically wrong, led
to a money stringency never before experienced in t h e
country. The banks cashed even t h e smallest a m o u n t
of their notes only reluctantly and under difficulties and
raised the discount rate to 8 per cent, and even then p u t
obstacles in t h e way of every discount transaction. I n
spite of this, they were themselves in a difficult situation,
as t h e financial reservoirs of t h e Swiss banks, such as t h e
nearer branches of t h e Bank of France and the large Paris
financial institutions, which h a d until then willingly rediscounted t h e portfolio of t h e Swiss banks and h a d sent
t h e equivalent in gold and silver coin to Switzerland,
suddenly ceased t o entertain transactions of this n a t u r e
and left the Swiss money market t o its fate. This was
caused by t h e large demand made upon t h e money market b y t h e French Government and also b y t h e fear of
mob violence in Paris.
The banks, which were, first and foremost, concerned
for their own safety, tried in every conceivable manner
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to fortify their position; they endeavored to reduce all
possible engagements, and accordingly withdrew from
the market what little there remained of liquid assets;
on the other hand, they refused from the very first day
of the crisis to give credit even against the best of securities. The scarcity of money reached at times such a point
that no money was to be had to pay out wages, and in
some of the cantons the issue of private substitutes for
money and of official letters of respite was resorted to,
and only the establishment of a scale of values for English
gold coins by the Bundesrat put a stop to a further extension of the crisis.
In a number of reports and expert opinions submitted
to the Bundesrat the conviction was expressed that steps
must be taken to prevent a repetition of events of this
nature in the future, and even those persons who, as a
rule, were most strongly opposed to the interference of
national legislation in the domain of economic activity
agreed that it would be only possible to attain this end
by means of a uniform organization of the bank-note system all over the Swiss Confederation. Two different
points of view were brought to light in these reports and
suggestions. Some considered that the chief task of legislation was to guarantee the redemption of the bank notes
at all times and expected by improving the quality of a
bank note to give it a better credit in the market; whereby
also it would be made possible, in times of crisis and in
cases in which a suddenly increased demand for currency
makes itself manifest, to meet the requirements by simply
increasing the amount of the bank-note circulation, and
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this without recourse to legal-tender legislation or t h e
issue of state paper currency. As a means to this end
a merely legislative regulation of t h e conditions of the
issue of b a n k notes and of the duties of t h e issuing banks
appeared t o be sufficient. T h e second view expressed
was t h a t a mere legislative reform with t h e existing multiplicity of banks retained could not possibly lead to t h e
desired result, and accordingly t h e establishment of a
central b a n k having a monopoly of the power to issue
notes was advocated. This view was represented in two
expert reports, t h a t of Professor R u e t t i m a n n and
N a t i o n a l r a t a Feer-Herzog and t h a t of Nationalrat Doctor
Kaiser. The first expert opinion was as follows: " The
first form which appears worthy of examination is t h e
establishment of a central bank of issue. This t e r m does
not necessarily signify a federal bank. One can find a
large number of variants between t h e position of a state
bank and t h a t of an independent b a n k . " The expert
opinion of Nationalrat Doctor Kaiser advocates a state
b a n k somewhat more openly, b u t without rejecting a priori
the idea of a private bank with state participation and
without demanding a bank-note monopoly for t h e central
b a n k to be created.
In the Federal Councils t h e revision of t h e constitution
was just at this time in t h e foreground, and it was proposed to make use of this to transfer to the Confederation
t h e power of bank-note legislation. As early as December
a
Nationalrat is both the name of a legislative body (National Council)
and the designation of any member of t h a t body. The like is true of
Bundesrat and Standerat.—TRANSLATOR.

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6, 1870, the Bundesrat laid a motion of this nature before
the Bundesversammlung, while at the same time in the
Nationalrat the motion was put that the competence of
the Confederation was to be enlarged, and that the
authority for the establishment of a federal bank should
be granted. The majority of the Bundesversammlung
were, however, of opinion that this question was not yet
ripe for decision and contented themselves with including
in the new federal constitution an article in the direction
of the Bundesrat's proposal, in virtue of which power was
given to the Confederation to proclaim general rules for the
issue and the redemption of bank notes. This article has
never attained any practical importance, as the whole
of the constitutional legislation was defeated by the referendum of May 12,1872. In the year 1873, on the occasion
of the new revision of the constitution, Nationalrat Doctor
Kaiser moved that the following be included in the text of
article 39: " Legislation concerning the establishment of
banks of issue, as well as the issue and redemption of bank
notes on the part of banks already existing, is a matter
for the Confederation. The Confederation is authorized
to establish a bank which shall have the right to issue
notes, without, however, setting up a monopoly." This
proposal was now accepted by the Bundesversammlung
inasmuch as it granted the Confederation the power of
legislation as to banks of issue and enunciated the principle
of the inadmissibility of a bank-note monopoly; whereas
the authority to create a bank of its own was not granted
to the Confederation. Article 39, thus modified, was
incorporated in the federal constitution of May 29, 1874,
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and formed the basis of Swiss bank-note legislation until
the year 1891. It read: " The Confederation is authorized
to proclaim by way of legislation general rules for the issue
and redemption of bank notes. It shall, however, not set
up any monopoly in the issue of bank notes, nor shall it
express any legal responsibility for the acceptance of the
same."
In fulfillment of article 39 of the federal constitution the
Bundesrat submitted, as early as June, 1874,to the Bundesversammlung the draft of a new bank law, which was
accepted by both councils on September 18, 1875. This
act conferred upon the Bundesrat the right to grant authority to issue bank notes; it fixed the capital of every
bank of issue at a minimum of 500,000 francs; it reduced
the amount of the bank-note issue to the total of the paidup bank capital and to the maximum sum of 12,000,000
francs for any one bank, and it contained a prohibition
against the granting of unsecured credit and the carrying
out of unsecured time transactions. Its other provisions
coincided very nearly with those of the law of 1881, which
will be treated later on. Against this first Swiss bank-note
law a referendum was called for and on April 23, 1876, the
people rejected it by a majority of 73,000 votes.
It seemed, therefore, impossible to arrive at any result
by way of legislation, while on the other hand the evils
already existing were assuming even larger dimensions.
Along with the number of banks the volume of the note
circulation steadily increased, and nearly parallel with the
increase of the fiduciary substitutes for money went a

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deterioration in their quality and in t h e securities covering
them. A few figures will briefly sketch this development:
Number
Note circuof
Amount issued. lation per
banks.
capita.
Francs.

Francs.
9. 20
16.50

24, 8 0 0 , 0 0 0

1872.

44, 5 0 0 , 0 0 0

1873-

47,800,000

17. 60

1874-

80,100,000

1875-

77,200,000

1876.

80,600,000

1877-

83,100,000

i8 7 8_

82,600,000

36
036

83,700,000

29. 00
28. 10
29. 10
29. 80
29. 90
29. 70
32. 70

1871-

1879-

92,900,000

«Of these 36 banks in the year 1880, 11 were pure state banks, and the remaining 25
were joint-stock companies, some with state participation. Of the state banks, 4 had no
paid-up capital and 2 had no surplus.

No doubt the reason for this surprising increase in t h e
issue of notes (notably so in the period from 1871-1875)
m a y partly be found in the Swiss coinage policy, b u t in
far the greatest measure it is to be sought in the policy of
the banks, which, disregarding all banking principles,
entered into every conceivable transaction for t h e sole
purpose of bringing the largest possible a m o u n t of their
notes into circulation. Even a new concordat, concluded
on July 8, 1876, could not materially alter this situation.
By July 1, 1878, 24 out of the 32 then existing banks had
subscribed t o the concordat, under which they bound
themselves to cash each others' notes, to collect matured
bills, to cash drafts, and to transmit to each other their
weekly and monthly balance sheets. Through these means
it was hoped to bring about an improvement. I t was,
however, impossible for this concordat to achieve a
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thorough success because the banks that did not belong
to the concordat went their own way and even the concordat banks were often in their own business not in a
position to satisfy the most modest requirements.
The kinds of business carried on by the 24 concordat
banks was as follows:
Gave credit in current account against deposit of stocks and shares. _
Granted credit against personal security
Gave credit against the pledging of goods
Gave open credit
Took over or participated in loans
Issued bills drawn at long sight on places in and out of the country,,
granted loans on mortgage security, and accepted drafts
Contracted loans
Did contango business in Stock Exchange securities
Issued bonds with participation in profits

24
19
11
5
17
13
5
4
1

The funds were sunk in all sorts of enterprises and
were not realizable, and the difference in the form, contents, standard, amount, language, size, and color of the
bank notes might be looked upon as a true symbol of the
variegated character of the banking organization. The
way in which business was managed was, if anything,
even more irregular. The specie reserve ranged between
92 and 18 per cent of the note circulation; and how little
unity there was in the discount policy will be seen from the
fact that while a Zurich bank altered its rate seventeen
times in 1878, another concordat bank in Geneva only
found it necessary to alter its discount rate eight times.
About the middle of the seventies, almost simultaneously with the rejection of the law of September i8 3
1875, another feature cropped up in the Swiss bank question. Until that time the question excited real interest
only in professional circles; the people were rather passive
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in the matter and at the polls merely followed the advice
of their trusted leaders without troubling to form a judgment themselves. Among political leaders the friends of
the existing system had a very large majority, and
accordingly the parliamentary activity of the supporters
of the centralization of the bank-note system was incapable of achieving results. Doctors Joos and Curti, of the
Nationalrat, now tried to arouse the people's interest in
this question and thus take away the decision from the
exclusive control of the cantonal politicians. Their
activity was, in the main, concentrated on the repeal of
the constitutional prohibition of a bank-note monopoly,
the removal of which must necessarily precede any legislation of the kind advocated by the friends of a central
bank. These endeavors met with the more approval
because the failure of the attempts of several Cantons to
make good the lack of federal legislation by means of cantonal laws necessarily tended to strengthen any attempt
to remove the restrictions of article 39 of the federal constitution. Joos and Curti first incited the Swiss People's
Union (Volksverein) to address an appeal to the Federal
Assembly to revise the federal constitution in the manner above indicated. After the Nationalrat had pronounced itself, in principle, against a bank-note monopoly
and a state bank, in its deliberations of November 28,
1879, a n d the Bundesversammlung had taken the same
position—not, however, without a strong tendency in
favor of the appeal having manifested itself in the Nationalrat—Joos and Curti started a popular agitation
which led to the result that by August 3, 1880, 54,000
21

National

Monetary

Commission

signatures of Swiss citizens were lodged with t h e Federal
Chancellor demanding a revision of article 39 of t h e
federal constitution, with the aim of removing t h e prohibition of a bank-note monopoly and providing for the
establishment of a state bank.
According to article 120 of t h e Swiss constitution every
petition formulated by the people's initiative m u s t be
submitted to a yote of t h e people. The language of this
article, however, provided t h a t only t h e question whether
a revision should take place of not could be submitted to
t h e people, b u t not the question of the modification of a
particular article. Supported b y this circumstance, and
knowing well t h a t the people, tired of the constitutional
struggle which had only recently ended, would be unwilling
to reopen t h e question of revision of the constitution, t h e
opponents of t h e petition in t h e National Council formulated the following question to be p u t before t h e people:
1
' Shall a revision of the federal constitution t a k e p l a c e ? ' '
The expected result could hardly fail to come. I n t h e
vote of October 31, 1880, t h e petition was rejected b y
260,126 votes against 128,099.
B u t even among those who, while wishing to retain t h e
system of multiplicity of banks, sought to secure regulation of them by law, there was no agreement. The representatives of commerce desired t h a t in the new law t h e
provision should be embodied t h a t t h e privilege of issuing
notes could only be conferred on pure discount b a n k s ;
they wanted to restrict the sphere of action of the issuing
banks and demanded t h a t t h e cover of t h e entire note circulation should consist of specie and bills. The representa22

The

Swiss

Banking

Law

tives of t h e Cantons, on t h e other hand, demanded t h a t
entire freedom of action should be given to t h e banks a n d
t h a t t h e cover of t h e entire note circulation should consist
of specie and stocks. The former laid the chief stress on
t h e redeemability of t h e notes a t any time, for which t h e
bills in t h e portfolio appeared t o be t h e best g u a r a n t y ; the
latter, on t h e security of the notes, which they t h o u g h t
could be best attained b y cover in stocks for such p a r t of
t h e circulation as was not covered b y specie. I n J u n e ,
1880—prior, therefore, t o the poll on t h e revision of t h e
constitution—the Nationalrat laid before t h e two Federal Chambers a new draft of a law respecting t h e issue
and t h e redemption of bank notes, in which an a t t e m p t
was made to respect the various wishes and claims p u t
forward, b u t which on t h e whole took up t h e standpoint
of t h e commercial representatives and thus demanded
a cover for t h e notes and other liabilities at short sight of
50 per cent in specie and the remaining 50 per cent in
bills. In addition to this, t h e draft contemplated t h e
creation of a federal bank, though without t h e grant of a
bank-note monopoly; or a t all events it was designed to
smooth t h e way for it. The Standerat, which h a d t h e
priority in t h e consideration of this bill, not only eliminated this last provision, b u t it so transformed t h e entire
draft of t h e Nationalrat t h a t t h e chief object of t h e
bill, namely t h e creation of a well-secured and always
redeemable bank note, was sacrificed to the fiscal interests
of a n u m b e r of Cantons. The restriction of t h e sphere of
activity of t h e banks of issue contemplated b y t h e Federal
Council was set aside; t h e metallic reserve was reduced
23

National

Monetary

Commission

from 50 per cent to 40 per cent of the circulation, and for
the remaining 60 per cent a reserve in securities was
decided on. The report of the commission of the Nationalrat commented as follows on the conclusions adopted
by the Standerat: " We are all the less able to approve of
the expunging of all the provisions relating to a possible
establishment of a federal bank because there appears to
be little or no prospect of introducing into the present bill
those rules that are recognized by other countries as being
the correct ones for the bank-note business. It is, therefore, very doubtful whether the idea of concentrating the
issue of bank notes in the hands of the confederation,
either with or without monopoly, as the only thorough
remedy for existing evils will not sooner or later prevail;
and we must admit that, though we are quite willing to
deal with the actual position of affairs and to recognize
legitimate interests, we should greatly prefer the creation
of a central institution on a sound and safe basis—a federal
bank which would be a pure bank of issue—to the proposals of the Standerat, unless these should be modified."
The commission itself proposed a number of modifications
of the conclusions of the Standerat, but without again
introducing, at this juncture, the provisions of the Bundesrat's bill. It assented to the reduction of the metallic
reserve to 40 per cent of the circulation and prescribed as
reserve for the remaining 60 per cent the bills in the portfolio of the pure discount banks and for banks of another
character either the deposit of securities or a guaranty of
the home Canton.
On February 15, 1881, this draft of the commission
came up for consideration by the Nationalrat.
On the
24

The

Swiss

Banking

Law

same day Nationalrat Dr. Alfred Escher submitted a
draft of a bank law which he had worked out conjointly
with Cramer-Frey, afterwards a member of the Nationalrat. This draft differed from that of the commission
in several particulars. It required the issue of notes to
be under a management distinct from that of the other
business of the bank; it required the reserve to be composed only of specie and commercial paper; and finally
it proposed to impose on the banks the duty of depositing
with the Confederation securities equal to 10 per cent of
their note issues. By a vote of 68 to 21 the Nationalrat decided to consider the bill introduced by the
commission. This Chamber finally adopted the bill on
February 28 after certain differences between the Standerat
and the Nationalrat had been reconciled; on March 8,
1881, the law was finally passed by both Chambers, and it
went into force on January 1, 1882.
This law, which—as can not be denied—has put a stop
to the wildest excesses of the days of cantonal sovereignty, can not be considered as anything else than a
compromise between the demands arising from the development of trade on the one hand and the fiscal and political special interests of the Cantons on the other. The act
restricted itself to codifying the existing relations and to
setting up general rules applicable to all banks, viz, (1)
respecting the right of issuing notes and the extent thereof;
(2) respecting the obligations of cover and redemption,
security, and privileges of the note holder; (3) respecting
the relations of the banks of issue among themselves and
their sphere of activity; (4) respecting the form of the
25

National

Monetary

Commission

notes and their denominations; (5) respecting t h e control
exercised by t h e federal authorities; (6) respecting t h e
taxation of t h e note circulation.
Its chief provisions were t h e following: Every banking
institution with a capital of at least 500,000 francs which
pledged itself to observe certain rules had t h e right t o
apply to t h e Bundesrat for permission to issue notes
to a total of double t h e amount of its capital. T h e b a n k
was obliged to keep in h a n d cash equal to 40 per cent of
t h e amount of notes in circulation a t any particular time,
without being a t liberty to use this cash for any other
purpose t h a n t h e redemption of its notes. Only t h e
a m o u n t of cash in exfce$s of t h e stipulated 40 per cent of
t h e circulating notes was considered "available funds."
The remaining 60 per cent could be covered in one of t h e
following three ways—either b y t h e deposit of stockexchange securities, or by a guaranty on t h e p a r t of t h e
Canton, or, finally, b y pledging t h e portfolio as a special
security in favor of t h e note holders. Only those b a n k s
t h a t provided cover in t h e last-named manner were obliged
t o restrict their business to t h e regular transactions of a
b a n k of issue—discount, loan, and transfer business, etc.;
all other banks were empowered to transact whatever
business they liked; they acted as banks of credit, as savings banks, granted advances on mortgage securities, participated in industrial enterprises, took over the issue of
industrial and state securities; in short, they fulfilled all
t h e functions of a general bank.
The Confederation superintended t h e issue of t h e notes
so as to secure t h e desired uniformity in form and style.
26

The

Swiss

Banking

Law

Another and far more important means of establishing
the unity of the note circulation was the provision requiring every bank of issue to accept in payment at full value
not only its own notes, but also those of other Swiss banks
of issue, so long as these institutions redeemed their notes
promptly; and to redeem all notes of other banks presented at their counter, without charge of any kind, within
three days at farthest. The balance sheets had to be
periodically published under the supervision of the federal
authorities. (This control was vested in the Swiss fiscal
department by decree of December 21, 1881, and a special
board of inspectors for banks of issue was created.) To
defray the cost of this control the banks paid to the Federal Treasury 1 per cent of the authorized issue. The
Cantons were empowered to impose a tax up to 6 per cent
on the same sums.
We shall have an opportunity later on to examine more
closely the effects of these regulations. We will confine
ourselves for the present to pointing out the chief deficiencies of this law.
Forty per cent of the amount of the note circulation at
any time of a given bank was to be always kept ready at
the bank in specie, which was booked separately and had
to be kept apart from other assets. This fund could not
be utilized for any other business of the bank, but was
reserved for the redemption of its notes and acted as
a special guaranty for the note holders. The reserve,
which everywhere else plays the part of a safety-valve,
which can be opened in case of need, could not therefore
be touched here, and not even the Bundesrat had the
27

National

Monetary

Commission

power to grant t h e banks t h e use of it. I n t h e face of cash
holdings amounting to 40 per cent of its notes a b a n k
might be compelled t o suspend payment. The predomin a n t tendency of t h e act is manifest in this stipulation;
namely, its object was not so m u c h to assure the redemption of t h e notes a t all times as t o save t h e note holders
from positive loss in t h e case of a possible liquidation.
The same considerations form also t h e basis of t h e provisions of article 12 of the law, according t o which t h e
a m o u n t of t h e circulating notes not covered in specie was
t o be covered either in stocks or b y a guaranty certificate
on t h e p a r t of a cantonal government. I t being quite
difficult enough to realize stocks in critical times, one could
even less expect to realize t h e cantonal guaranty a t t h e
m o m e n t of a crisis. Nearly all t h e cantonal banks m a d e
use of this illusory method of covering, although there
can be no doubt t h a t in t h e event of a financial crisis not
even 10,000,000 francs in specie could have been produced
out of all these g u a r a n t y certificates h a d the Cantons been
called upon to maintain t h e solvency of the banks.
The entire cash reserve of 40 per cent of t h e note circulation served as security for t h e note holders, and t h e law
contained no provision whatever requiring t h e banks t o
cover their other short-sight liabilities in a similar or in
any satisfactory manner. I n course of time this defect
was bound to endanger the continuous redemption of t h e
notes, more especially so as a number of banks h a d shortsight liabilities amounting to m a n y millions of francs, t h e
meeting of which might in p a r t be demanded b y telegraph
a t any moment without there being, a p a r t from t h e
28

The

Swiss

Banking

Law

untouchable 40 per cent of the note circulation, more than
a few hundred thousand francs of cash on hand. To this
has to be added the fact that a large number of the Swiss
banks of issue acted as savings banks, which had rather a
menacing effect upon the position of the banks, as experience has taught the lesson that savings-bank depositors,
if not more dangerous, are at least more pressing in their
demands than the holders of bank notes.
Finally we will touch upon the results of the very
important provision according to which the Cantons
were at liberty to impose a tax up to six-tenths of 1 per
cent of the amount of issue. We shall have an opportunity to show in the following chapter how unfavorably
the entire development was effected by this provision.

CHAPTER II.
DEVELOPMENT OF THE SWISS NOTE-BANK SYSTEM
UNDER THE BANK ACT OF MARCH 8, 1881.
SECTION I.—EXTENT AND DIRECTION OF THE DEVELOPMENT—DISCOUNT POLICY.
Before describing t h e development which took place
under t h e act passed on March 8, 1881, we m u s t fix in mind
t h e state of affairs existing a t t h e time t h a t law went into
force.
A t t h a t m o m e n t there existed:
Number
of banks.

Chief business.

Discount banks
Commercial banks
Mortgage banks
General banks
Caisse d'Amortissement de la Dette Publique
Total

Authorized
{donation)
capital.

Average
amount
of notes in
circulation.

30,000,000
20,500,000
17.398,000
57,700,000

39,762,000
14, 459. 000
10,233,000
34, 208, 000
739,000

125, 598, 000

99,401,000

Twenty-four of the above 36 banks were in t h e concordat, with an authorized capital of 116,650,000 francs
a n d an average note circulation of 92,262,000 francs; 11
were state banks, with an authorized capital of 37,398,000
francs and an average circulation of 33,659,000 francs.

The

Swiss

Banking

Law

In order to judge the importance and the position of the
various banks the following table will be of service:
Average
circulation of
notes
(in thousands of
francs).

Banks.

* Cantonal Bank of Berne
* B ank of Zurich
Savings Bank of the Canton of Uri
* Bank of St. Gall
* Bank of Basle
* Banque du Commerce in Geneva
* Banque Cantonale Vaudoise
* Banque de Geneve
Savings and Loan Bank in Lucerne
* Banque Cantonale Fribourgeoise
* Mortgage Bank of Thurgovie
* Bank of Glaris
Banque Populaire de la Gruyere
* Banque Cantonale Neuchateloise
Caisse Hypothecaire de Fribourg
* Bank of Argovie
* Cantonal Bank of Lucerne
* Cantonal Bank of Soleure
Banca Cantonale Ticinese
* Bank in Schaffhouse
* Bank of Girisons
Loan Bank in Glaris
* Federal Bank (Limited)
* Banque du Toggenbourg
Banque Populaire de la Broye
Credit Agricole et Industriel de la Broye
* Cantonal Bank of St. Gall
Caisse d'Amortissement de la Dette Publique
* Cantonal Bank of Basle Land
* Cantonal Bank of Thurgovie
Cantonal Bank of Grisons
* Cantonal Bank of Zurich
* Banca della Svizzera Italiana Lugano
Credit Gruyerien
* Cantonal Bank of Appenzell A.-Rh
Cantonal Savings and Loan Bank of Nidwalden,
Stans
Total.

7, 257

4, 502
287
3.995
7,5oS
14,074
5. 172
4,030
982
1, 703
725
1, 160
160
5,656
26
2,326
1.953
1,878
2, 060
652
285
293
4,783
970
18
214

5,98o
739
690
1,306
1,953
12,276

Average
cash
assets
(in thousands of
francs).

2,876
4, 001
in
1, 448
3 , 751
4,757
2, 114
1, 041
871
697
312

37o
54
1, 6 b i
173

836
881
855
3i8
259
180
134
2, 248
336
29
74
2,374
163
290

55i
657
7, 109

1, 43 7

5i6

165
i,947

27
704

99,401

42,851

N. B.—The banks marked with an asterisk (*) belonged to the concordat.
31

National

Monetary

Commission

After the law had gone into force 29 of the 36 banks
above mentioned requested the Federal Council to grant
them the authorization to issue bank notes. This privilege was conferred upon 26 banks which were in a position
to prove their compliance with the preliminary requirements, before the 1st of July, 1882; the remaining 3 banks
received this authorization only later on, to wit, one in
July 11 and 2 on September 1, 1882. From that day 29
banks of issue with an actual circulation of notes to the
value of 102,174,055 francs, were subject to this law.
The following tables will show the development since that
time:

Description.

Year.

Numb e r of
banks.

ProporPaid-up
P r o p o r t i o n Ims si lulei o(in
n s t i o n of
c a p i t a l (in
of t o t a l ,
total
m i l l i o n s of
of
capital.
issue.
francs).
francs).
Per

( 1885
C a n t o n a l g u a r a n t y b o n d s _ | 1890

17
19

I 1904
1885
| 1890

134

7
17 3
19 6

1 1904
1885

I 1890

6
6

35
43

I 1904

D e p o s i t of s t o c k s __

Bill portfolio

13-0

cent.
19.91
53- 00
44. 66
26. 49

Per

cent.

68. s

50. 7

146
11

5
5
6

IS- 00

i5-3o
53-6o

32. 00

41 0

21. 00

55 0
77 5
74 0

8 6
8 0
9 9
7
45 0

1890.

1885.
A u t h o r i z e d issues.

Numb e r of
banks.

A m o u n t of
oportion
issue (in P rof
total
m i l l i o n s of
issue.
francs).
Per

F r o m 2,000,000 t o 5,000,000 francs
F r o m 5,000,000 t o 10,000,000 francs _ __
F r o m 10,000,000 t o 20,000,000 francs

Total

17
8
5
3

19. 6
29-5
42. 0
47-0

cent.
14.09
21.21
3 0 . 27
34- 43

138. 1

100.00

Numb e r of
banks.

1904.

A m o u n t of P r o p o r t i o n
issue (in
of t o t a l
m i l l i o n s of
issue.
francs).
Per

19
8
4
3
1

75-o
24. 0

cent.
12.34
17. 18
I5-96
4 1 . 29
13- 23

181.6

100.00

22. 4
3i- 2
29. 0

Numb e r of
banks.

A m o u n t of P r o p o r t i o n
i s s u e (in
of t o t a l
m i l l i o n s of
issue.
francs).
Per

11
13
5
4
2
1
36

11.
5338.
64.
48.
30.

cent.
4. 49

00
75
00
00
00
00

21.97
15-52
26. 15
19. 61
12. 26

244-75

100.00

N. B.—The above figures have been taken from the reports submitted by the Bundesrat to the Bundesversammlung respecting the
annual reports of the board of note-bank inspectors, and from the annual reports of some of the banks themselves.
*5-

h
&

National

Monetary

Commission

Two tendencies in the development are brought to light
by these figures. In the first place it is noticeable that
banks arranging their cover in the form of a cantonal
guaranty bond were gradually on the increase, while on
the other hand the number of banks covering by way of
stocks or bills was on the decline. The percentage of the
former kind of cover increased from 50.7 per cent in the
year 1885 to 59.9 per cent in the year 1904, calculated on
the total issues. In agreement with this tendency, the
number of banks of the former category increased from 17
to 22 and the number of the latter category of banks
declined from 16 to 14 in the same period.
The second tendency shows itself in the increase of the
share of the large and financially strong establishments at
the cost of the smaller ones. In this domain also the
process of concentration was steadily going on, the banking business going more and more into the hands of the
big banks. The share of banks with a total issue below
2,000,000 francs declined from 14.09 per cent of the total
issues in 1885 to 4.49 per cent in 1904; within the same
period the share of banks with an issue up to 5,000,000 fell
from 35.30 per cent to 26.46 per cent of the total issues,
whereas the share of the banks with an issue of more than
10,000,000 francs increased during the same period from
34.4.3 per cent to 58.02 per cent. If the maximum amount
of the authorized issue of a certain bank was 20,000,000 in
1885, this had increased to 30,000,000 by 1904, and this
single bank with such an authorized issue plays a more
important part than all the 12 banks with issues below
2,000,000 each, put together.
34

The

Swiss

Banking

Law

Since t h e act went into force t h e total of t h e authorized
issues has risen from 108,000,000 to 244,750,000 francs.
In order to indicate with w h a t degree of probability conclusions as t o t h e effective circulation m a y be drawn from
t h e a m o u n t of t h e authorized circulation, we give here t h e
figures for t h e year 1904.
[In millions of francs.]
Average.
Kntire circulation « _
Effective circulation b __

Maximum.

Minimum.

228. 4
213. 4

241. 2

221.7

234. 1

198.0

20.8

35-9

a The "entire circulation" represents the total amount of notes put into circulation
by all the banks, and includes the notes of other Swiss banks of issue (but not their own
own notes) held by the various banks.
b
The "effective circulation" represents the amount of notes actually in the hands of
third parties.
cThe "note reserve" is the amount of bank notes in the hands of the banks, including
both their own notes and those of other Swiss banks of issue.

This expansion of t h e bank-note circulation, which was
out of all proportion and which was consciously stimulated
b y t h e banks b y the issue of notes of small denominations,
was more or less provoked b y t h e n a t u r e of t h e t a x on
b a n k notes, and in its consequences it is so closely related
t o t h e discount policy t h a t we think it advisable t o t r e a t
t h e three subjects in one group.
The Swiss banks of issue being compelled, as already
stated, t o pay taxes not on t h e a m o u n t of t h e effective
circulation b u t on t h e total of t h e authorized issue, t h e y
were naturally disposed to enlarge t h e circulation as much
as possible, as they h a d to pay on t h e total of t h e authorized issue anyway and leaving a p a r t of this sum idle would
have m e a n t a direct loss t o them. The banks h a d t o keep
35

National

Monetary

Commission

40 per cent of their circulation in specie in their v a u l t s ;
and if, for instance, 20 per cent of a bank's issue (i. e., its
authorized issue) were not in circulation a t all, only 40 per
cent of its issue would have been profitably invested, which
would have resulted in a profit of about 2 to 2 % per cent of
t h e issue. The b a n k having to pay six-tenths of 1 per
cent of t h e entire authorized issue to t h e Cantons and onet e n t h of 1 per cent to t h e Confederation, this would m a k e
roughly 1 per cent, which, taken off t h e profit above shown,
would leave a profit of only 1 to 1% per cent. I t will
therefore be readily understood t h a t all t h e banks of
issue endeavored t o p u t their entire authorized issue on
t h e market, so t h a t every taxable note should yield a
r e t u r n ; and this object was attained, b u t only a t t h e cost
of a violation of two principles of every sound discount
policy, namely, t h e principle of selection of t h e material
for discounting, and t h e principle of regulation of t h e
b a n k rate.
According to t h e reports of t h e federal board of banknote inspectors t h e investments of t h e Swiss note b a n k s
were constituted, upon yearly averages, as follows:
Amount of investment
(in millions of francs).

Ratio to total
investment.

Descriptive titles.
1885.

1895-

1895.

I.—Short-time investments.

Per ct.

Discounted Swiss bills
149.82
Discounted foreign bills
30.36
31-34
Bills with collateral
1. 00
Due by other banks
Due by correspondents (agents) 29. 28
1.94
Miscellaneous
Total

243.74

163. n

191.07

43-5o
2.88
25-83

38.40
47- 13
6. 42
5i-5o
3-3i

2. 50
253-38

337-85 j 35-73

Per ct. Per ct.
15-97
1.52
4. 26

1 1 . 22
2. 25
2. 77

.28

.38

2. 52

3.02
. 20

• 24

19.84

The

Swiss

Banking
A m o u n t of i n v e s t m e n t
(in millions of f r a n c s ) .

Law
Ratio to total
investment.

Descriptive titles.

II.—Long-time

1895.

1904-

65- 23
61.61

113-36
9 6 . 12
408.65

1885.

1895.

1904-

investments.

Current-account debtors
Promissory notes
_

'49- 26
1. 13

___ 4 3 8 . 8 2

768.52

1,365.60

236. 75

Stock investments
Miscellaneous _ _
_

74-99
. 24

251-50
156.66
760.55
194.70
2. 19

_ _

Mortgage investments

Total

1885.

Grand total _ _

682.56

i,021.90

i,703-45

9.07
54.78
10. 74
.08

Per ct. Perct.
11. 09
14.76
9.4i
9- 19
39-99
44- 65
14. 61
H-43
. 11
• 13

64.27

75-21

80. 16

100.00

Per ct.
9. 60

100.00

The ratio of the short-time to the long-time investments
decreased from 36 : 64 in 1885 to 25 : 75 in 1895, and even
to 20 : 80 in 1904. Moreover, the fact must not be lost
sight of that the discount and collateral bills designated
in the foregoing table as short-time investments do not by
any means have that quality in the same degree as the
like assets have in the portfolio of a large central bank of
issue. A much wider range of bills are regarded as bankable in Switzerland than elsewhere; owing to the fact that
the banks were continually hunting for bills, discounting
became, so to say, democratic, and accordingly the quality
of the Swiss bill portfolio was not by any means of the
same standard as the discount investments of the German
Reichsbank or of the Bank of France. The best proof of
this is furnished by the fact that while the Reichsbank
only suffered a loss of 0.08 mark on every 1,000 marks of
average investment in bills and the Bank of France lost
only 0.02 franc on every 1,000 francs, the Swiss banks of
issue in the same year (1904) sustained, on the other
hand, an average loss of 0.51 franc per 1,000 francs.
37

National

Monetary

Commission

Investments in bills with collateral, too, gradually lost
their short-time character owing to the practice of extension carried on very extensively by Swiss banks of issue,
and in reality these became long-time investments, often
difficult to realize on. The circumstance that the Swiss
banks of issue now and again lowered their collateral-loan
rates below their discount rates—a fact which is unique
in the history of banking—materially contributed to the
spread of this practice.
Finally, if we examine the rate of increase of the various
elements of both classes of investments we obtain the
following characteristic results:

1885.
Amount.*

Bills w i t h c o l l a t e r a l
Bills of all s o r t s

_ _

All i n v e s t m e n t s
Long-time investments:
Promissory notes
Mortgages.
Stocks
All i n v e s t m e n t s

1885=100.

Per

Short-time investments:
Swiss b i l l s .
F o r e i g n bills

__ _

1904.

1895.
Amount.*

cent.

Per

149.82

IOO.OO

163.11

30.36
3 0 . 14

IOO.OO

I5-56

IOO.OO

43-5Q

210.32

IOO.OO

222.17

243- 74

IOO.OO

253.38
96. 12
408.65
149.26
768.52

61.61

IOO.OO

236.75

IOO.OO

74-99
438.82

IOO.OO
IOO.OO

1885=100.

Amount.*

1885 = 100.

cent.
109.47
51-86
145.00
105.80
103.42

337.85

157-57
137- 16

760.55

256.82
3 2 2 . 26

194-70
1,365. 62

259.60
311.78

201.70

175-45

Per
191.07
38.40
47- 13
276.61

156.66

cent.
128.23
128.00

157.10
131.72
139.03

* In millions of francs.
?3-

S
**

h
&

National

Monetary

Commission

While the investments in bills, including bills with
collateral, rose from iooto 131 in the years i885-i904and
the sum of the entire claims at short sight rose from 100 to
139, the mortgage investments increased from 100 to 322
and the stock investments from 100 to 259 and the entire
amount of long-time investments from 100 to 311.
The influence which such a distribution of investments
exercises upon the solvency of the banks will come to light,
in the investigations that follow.
The second of the above-mentioned offenses against
the principles of a sound discount policy has reference to
the method of fixing the bank rate.
The act of 1881 restricted itself to an external regulation
of the note issue; the internal regulation did not come
within its scope. The law did not contemplate a general
bank rate binding for all Swiss banks of issue; and it was.
therefore inevitable that the various banks, animated by
the desire of putting the greatest possible amount of notes
into circulation, underbid each other in their discount
rates.
Each banking center published its own rate of discount
and it happened not infrequently that one bank lowered its rate of discount while another raised it at the
same time. Sometimes even in the same center two
banks thought fit to establish two different discount rates.
Thus the door was opened for discount arbitrage between
the various bank centers, and in connection with this specie
was shoved to and fro between these places, without the
slightest economic necessity. The situation was aggravated by the circumstance that banks located in the
40

The

Swiss

Banking

Law

smaller towns, b u t equipped with large note issues,
sought investments for t h a t p a r t of their issue which t h e y
could not use a t home in such great business centers as
Basle, Zurich, Geneva, St. Gall, and b y their offers of money
often depressed t h e b a n k rate of these towns.
I t was not until t h e year 1893 t h a t 28 of t h e t h e n existing 35 banks decided " t o keep t h e discount r a t e a t an
appropriate level in order to protect t h e stocks of cash in
t h e c o u n t r y , " and a committee consisting of five of t h e
largest banks was appointed to deal with t h e question of
fixing a general official discount rate, which should serve
as a basis for all discount transactions. W i t h t h e introduction of this uniform and official discount rate there set
in a decided tendency toward t h e b e t t e r m e n t of conditions.
Very soon, however, this agreement proved inadequate.
Nearly all banks of issue, with t h e exception of t h e
Bank of England, consider their official r a t e not as a
minimum b u t as a m a x i m u m rate. This makes it possible
for t h e m to keep their official rate unaltered for a long
time, without incurring any loss, either in t h e extent or in
t h e quality of their bill portfolio, through the frequent local
and temporary variations in t h e private discount r a t e
based upon no adequate foundation in t h e actual condition
of t h e money market. This puts t h e m into t h e position
of suiting their discount transactions t o t h e requirements
of t h e local money market without discarding their uniform
discount policy. They increase their power of competing
with private banking institutions, they enlarge t h e field of
operation for their current funds, they obtain also firstclass b a n k and commercial acceptances for their portfolio
41

National

Monetary

Commission

without subordination to the private institutions and
without giving up their commanding position in the money
market.
The vSwiss banks of issue, which were subjected to very
keen competition in the discount market on the part of
the powerful credit institutions of Zurich, Basle, and
Geneva, were of necessity obliged to maintain a private
discount rate also, if they did not wish to run the risk of
losing the first-class bill material and obtaining for their
portfolio merely bills of a secondary quality. It is clear,
however, that this private rate would have to be fixed
uniformly also, if all the advantages of the agreement as
to the official rate were not to be lost. Accordingly, in
May of the year 1894, 22 banks arranged a concordat with
a view to fixing a uniform minimum of the private rate
of discount. But already in December of the same year
this agreement, in which the two banks of Neuchatel and
those of Aarau, Solothurn, Liestal, and Coire had not
joined, was canceled and the old unregulated condition of
things returned.
In view of this failure it is not surprising that the
question was shelved for several years, and only the pressure
of a continuous depreciation of the rate of exchange brought
it again to the front. Not until March, 1898, did the
banks of issue endeavor a second time to arrive at a
mutual arrangement on this subject; but already in 1900 the
regulations that had been laid down had to be modified,
so that the minimum of the private rate of discount, as
established by the committee, was not to be binding for
any particular bank; the established minimum was to be
42

The

Swiss

Banking

Law

telegraphed t o t h e banks, and each b a n k was then t o be a t
liberty t o judge to w h a t extent it would be governed b y
this rate. The agreement contained t h e superfluous
proviso t h a t each particular b a n k was only obligated to
maintain this minimum limit " as far as possible " and t h a t
it h a d t h e right t o discount u p t o one-fourth of i per cent
below t h e fixed minimum rate b a n k acceptances, or firstclass commercial papers, or for the purpose of keeping its
holdings of bills u p to t h e a m o u n t prescribed b y its rules
and regulations.
There existed consequently three "official" b a n k r a t e s :
(i) The so-called official b a n k discount for the general
ranks of commerce and industry; (2) t h e not less official priv a t e rate of discount for the bills of first-class merchants
and manufacturers, as well as for those who could obtain
for their bills a second and third signature, also for
rediscounting bills from smaller banks and bankers; (3)
the likewise official minimum rate of discount for first-class
bank acceptances.
I n t h e years 1899-1900 these regulations seemed to be
effective. The great demand for money which was experienced in these years toned down the competitive fight of
the banks of issue on the discount market. A minimum
limit was thus created for the private rate, which in t u r n
gave a stronger hold to the official discount r a t e ; and t h e
better grip upon t h e open money market which was the
natural consequence stood the banks in good stead in their
endeavor to counteract the evil consequences of t h e unfavorable rate of exchange. Like all the other agreements
of the Swiss banks of issue, this one also suffered from the
43

National

Monetary

Commission

disadvantage of not having a binding character. Not all t h e
banks entered into the agreement, for the alleged reason
t h a t they were not in a position to complete their portfolios
without going below the minimum rate as fixed by t h e
committee. Even of the 29 banks t h a t had a t first entered
into the understanding, some were unable permanently t o
subject themselves to t h e control of t h e discount committee
a n d they announced their withdrawal, in consequence of
which the competition against t h e allied banks on t h e
discount market was greatly increased. I n addition t o
this competition on the p a r t of banks of issue t h a t had not
entered into t h e agreement and of other banks, there was
t h e competition of various governmental managements
which endeavored to invest their available cash assets in
discount bills, while on the other h a n d t h e commerical
depression since t h e beginning of 1901 caused a decrease
in the discount material. The position of those banks
t h a t had remained faithful to t h e agreement became so
difficult t h a t a new revision of the regulations was decided
upon, which should give t h e various banks greater freedom of action. This plan of compromise was, however,
frustrated by a large number of banks showing their dislike of the agreement, and in the general meeting of t h e
banks of issue on November 23, 1901, the stipulations
respecting the minimum rate of discount were entirely
abolished and the old state of freedom from all restriction
was thus reestablished.
Nothing much could be done t o alter this state of affairs
by the " l o y a l " banks adopting a private understanding,
which was ratified in a general assembly of the banks of
44

The

Swiss

Banking

Law

issue held a t Basle in 1905. This understanding, which
h a d no binding character, comprised in September, 1905,
20 of t h e 36 banks of issue, among which there were several
large institutions, b u t there were other large banks which
did not join. The understanding fixed a uniform private
rate for the banks entering into it, b u t it left t h e m free to
reduce the rate in discount transactions among themselves,
and also for first-class commercial paper, to one-fourth
of 1 per cent below the uniform private rate.
The effects of these conditions upon the discount business were most clearly shown in the actual course of
t h e discount rates. There are two things which, from
this standpoint, deserve particular attention. The first is
t h e fact t h a t it was possible, a t times, to discount in the
open money market in Switzerland a t a lower r a t e t h a n
in Paris, Berlin, or London, without there being any reason
for this except t h e competition of the banks among themselves. The second is t h a t the relation between the
average rate of discount and t h e average rate of profit on
bill investments was quite different in Switzerland from
w h a t it was in the great note-issuing banks. For instance,
while t h e profits of the portfolio of the Bank of France as
per annual report of 1904 were in excess of t h e average
r a t e of discount b y 0.17 per cent, t h e profit-earning capacity of t h e bill portfolios of the Swiss banks of issue was
0.69 per cent below the average rate of discount. F r o m
this it m a y a t least be inferred t h a t in Switzerland a much
wider range of bills were discounted below the official rate
t h a n , for instance, in France, without any other explanation
being possible t h a n the competition between t h e banks.
45

National

Monetary

Commission

These three principles of their policy—the underbidding
of each other on the discount market, the investment of
large sums in long-time transactions, and, finally, the discounting of bills or lending on collateral security below
the official rate—made it possible for the banks to keep
a larger amount of their notes in circulation than was called
for by the real requirements of business in Switzerland.
This they could only achieve at the cost of the elasticity
of the bank-note circulation, which in turn made it impossible to place at the disposal of the money market larger
sums of currency at times of increased demand for money.
The following table will prove this statement:
Swiss banks of issue
(millions of francs).

German Reichsbank (millions of
marks).

Circulation.

Average circulation
Highest circulation,_ _ _
Lowest circulation
Difference between high-

1890.

1895.

152-4
168.3
144. 1

179. 2 2 2 8 . 4 3
189.9 241.23
169.5 221.75

1904.

1890.

983.88

1895.

1904.

1.131.73
886.05

1,095-59
i , 3 2 0 . 08
968.21

1.288.55
1,599- 78
i, 137-92

24. 2

20. 4

19.48

245-68

351-87

4 6 1 . 86

15.92

n-39

8-54

26. 19

3 2 . 13

35. 84

This difference as percentage of average circula-

Putting these figures side by side, it will be seen at a
glance that the development of the Swiss banks takes exactly the opposite direction to that of the Reichsbank.
While the difference between highest and lowest of the
bank-note circulation of Swiss banks declined from 15.9 per
cent to 8.5 per cent in the course of the last fourteen years,
the figures of the Reichsbank show an increase from 26.1
per cent to 35.8 per cent within the same period. There
can be no difference of opinion as to the significance of this
46

The

Swiss

Banking

Law

change when one recalls the undisputed fact that it is one
of the chief aims of note-bank policy to give to the monetary circulation, without impairing its soundness, a greater
elasticity than can be attained by means of a purely metallic currency. The variations of the demand for money,
in longer periods as well as in the course of each separate
year, have become extremely great in the present stage
of economic development as compared with what took
place in former times. The degree in which it is possible
for a bank of issue to meet these variations of demand
depends upon the degree of elasticity of its note circulalation; that of the Swiss banks of issue declined continuously from year to year. a
o In the interest of accuracy, it should be mentioned that the figures
given for the year 1904 can not be regarded as a fully trustworthy measure
of the elasticity of the Swiss bank-note circulation. Already in the second
half of the nineties the plan was proposed in banking circles of backing up
the discount policy by a direct bank-note policy, in the fight against the
unfavorable rates of exchange. In times of great demand for money—it
was held—the banks of issue possess a certain control over the money
market by high discount rates; when the demand declines the rates of
discount fall also, which has a bad influence upon the rates of exchange.
In order to prevent this it was proposed that in such times the issues of
notes should be reduced; the loss thus resulting could be made good by
fixing higher discount rates. This suggestion met at first with lively
opposition, especially on the part of the banks, which saw their profits
threatened in that way, and only the fact of the exchange rates becoming
more and more unfavorable induced them to enter into a special understanding, into which 27 institutions entered on the occasion of the general
meeting, held at Basle on June 9, 1900; and by April, 1902, all the banks of
issue had joined: " The committee is empowered to put a restriction upon
the aggregate bank-note circulation whenever the general position of the
money market or the accumulation of notes in the possession of banks of
issue may warrant this step. Such restriction can not in the first instance
exceed 5 per cent of the authorized issue and a further restriction is not
admissible until four weeks have elapsed from the date of the first restriction, the total restriction must not exceed 10 per cent of the authorized

National

Monetary

Commission

K a l k m a n n characterizes this policy very correctly in
t h e following words:
/ ' I n a s m u c h as t h e banks of issue, at a time of small
d e m a n d for currency, press t h e largest possible a m o u n t
of their notes into circulation, they render themselves
incapable of meeting t h e requirements of t h e m a r k e t when
larger demands set in; for t h e upper limit of t h e note
circulation is rigid; each b a n k is obliged t o confine itself to
t h e quota allowed to it by t h e Confederation. Under such
conditions, the banks, in order to maintain their business
connections, are obliged to make use of their specie holdings, which, since their stock of cash is generally not m u c h
above t h e legal minimum, is far from agreeable. I n order
t o obtain cash they present each other's b a n k notes for
redemption, t h e y drive specie away from each other, a n d
they try to draw specie from a t home and abroad. There
is general complaint of scarcity of b a n k notes, and some
issue." The following figures will give an idea of how these arrangements
were carried out in the last two years, 1903-4.
There were withdrawn from circulation:

Days.
134

10 per cent_.
7.5 per cent_
5 per cent
2.5 p e r c e n t .

Days.
80
186
7

It is not our intention to deny the favorable effects of this special understanding ; but on the other hand we do not place a very high value upon it,
as it is an arrangement of a voluntary character only and any bank can
withdraw from it a t any time, and past experiences with voluntary agreements of this kind on the part of the Swiss banks of issue justify the fear
that the agreement may fail to work at the very moment when it is most
urgently needed,
48

The

Swiss

Banking

Law

banks regard this as showing the necessity of increasing
their share, or authorized {dotation) capital, so as to
receive from the federal authorities the grant of an increased bank-note quota. Then the game begins afresh;
the new notes must be put into circulation and must be
held there, and this generally at a time when the demand
for currency has diminished; the banks again underbid
each other in low discount rates; capital and gold go out
of the country; and if then an increased commercial
activity demands a larger circulation, a deficiency of notes
is felt, which, in turn, gives the signal for a new increase
of the issues. Consequently, Switzerland has always too
much money when she does not want any, and no money
when she requires it. It is the same story for the last
fifteen years; in the first half of the year superfluity of
money and in the second half of the year scarcity of notes.
Year by year the issues are augmented; year by year the
effective and the uncovered note circulation increase, and
year by year the exchange rate on France, whose discount
rate is very stable, is considerably worse in the first half
year than in the second.
After this survey of the development of the Swiss notebank system under the act of March 8, 1881, we will
discuss two sides of the question before we pass an opinion
on the law itself and its effects; we will study the degree
of liquidity of the Swiss banks of issue and then consider
the question whether and to what extent they were able
to fulfill the highest task of a bank of issue, namely, to
uplift and defend the exchange rates of its country.

83700—10

National

Monetary

Commission

SECTION II.—SOLVENCY.
Particulars of cover of the Swiss banks of issue as shown in the general balance sheets of December JI of the years 1885 and 1004.
[ I n m i l l i o n s of francs.]
1904.

1885.
LIABILITIES.
60 p e r c e n t of t h e i r o w n n o t e s i n c i r c u l a t i o n
Other short-time debts
S h o r t - t i m e p a r t of t h e s a v i n g s - b a n k i n v e s t m e n t
Total cash liabilities.

__ __

140

218

_ __ __
ASSETS.
13
19

O t h e r cash assets a n d short-time claims
T o t a l cash funds a n d short-time claims
P o r t f o l i o ( d i s c o u n t a n d f o r e i g n bills)
Total banking cover

_
_

C o v e r i n a v a i l a b l e c a s h for t h e u n c o v e r e d c i r c u l a t i o n
p e r cent__
C o v e r in a v a i l a b l e c a s h for t h e u n c o v e r e d c i r c u l a t i o n a n d t h e s h o r t t i m e liabilities _ _
_ _
per cent
C o v e r i n a v a i l a b l e c a s h a n d s h o r t - t i m e c l a i m s for t o t a l c a s h liabilities
-- - per cent._
T o t a l b a n k i n g c o v e r for t o t a l c a s h liabilities
do
a This should be 4.—TRANSLATOR.

191

232

22,3

323

°S

IS
106

19-

General statement of the Swiss banks of issue on December j r , 1904.
[In thousands of francs.]
Nature of cover of notes.
Cantonal guaranties (22
banks).

Stock deposits (10
banks).

Bill portfolio (4
banks).

Per cent.

Amount.

Per cent.

Amount.

Per cent.

143,832
273,732

9- 75
18.55

24,050
44,283

7-52
13-85

73,346
21,786

65-50

417,564
ii,841
857,434
188,949

28.30
.80
58.10
12.80

68,333
11,088
189,671
50,626

21.37
3-47
59-33
15.83

95, 132

65-50

2, 121

1,475,788

100.00

319,716

100.00

Amount.

All the 36 banks.

Co
Amount.

Per cent.

LIABILITIES.
Notes in circulation
Short-time liabilities _ _ _

___
__
____

Total
Bill liabilities. _
Other time d e b t s .
Sundry liabilities__
Total

___

241,228
339,8oi

12. 43
i7- 51

47,993

1. 46
33-04

581,029
22,929
1,049,226
287,568

29. 94
1. 18
54- 06
14.82

145,246

IOO.^OO

1,940,752

15.00

to
ft

TOO.OO

General statement of the Swiss banks of issue on December 31,

1904—Continued.

Nature of cover of notes.
Cantonal guaranties (22
banks).
Amount.

Stock deposits (10
banks).

Bill portfolio (4
banks).

All the 36 banks.

Amount.

Per cent.

Amount.

Per cent.

Amount.

Per cent.

72,010

4.88

11,289

22. 04

115,308

5- 94

.60

2, 182

3-53
.68

32,009

8, 799

1. 440

• 99

12.421

45.258

3-o7

9.567

2.99

7.483

5- 15

62, 308

.65
3.21

Total
Portfolio (discount and foreign bills)

126,067

8.55
10.95

23,038
22,394

7. 20

40, 932

28. 18

7. 00

47.709

32.85

190,037
231,769

11.94

Banking cover 0 total
Bills secured by collateral, etc

287,733

i9-5o
1. 64
67. 67

45,43 2
6,312
222,646

14. 20

88,641
21,706
20,578

6 1 . 03

421,806

2 1 . 74

1.97
69. 64

14. 94

52,289

14. 17

1, 2 4 1 , 834

6.69
63. 99

88.81
8.98

1, 7 1 5 , 9 8 9

8.67

2.21

85,81
8.93
5. 26

130,925
12,588

32, 718

274,390
28,549
16,779

90. 14

132, 456

1. 733

1. 1 9

173,593
5 1 . 230

I.47S.788

100.00

319,718

100.00

145,246

100.00

1 , 9 4 0 , 752

ASSETS.

Other cash assets
Short-time claims

161 666

24.271

998,610

Total
Stocks __
Sundry assets
Total

1,310,614

____

a Cover consisting of legal tenders and commercial paper.—TRANSLATOR.

9.80

88. 42
8. 94
2. 64

The

Swiss

Banking

Law

As a supplement to the foregoing figures, we add a conspectus of the joint statement of the Swiss banks of issue
on December 31,1904, prepared on different principles from
the foregoing table. In the first table, in accordance with
the requirements of the bank law, 40 per cent of the note
circulation, which was not at the free disposal of the banks,
was deducted from the total cash assets and the same
amount was deducted from the total of the note circulation. In the second table this item has been duly brought
into the account on both sides, which makes it possible
plainly to preceive the effects of the legal requirements in
question upon the liquidity of the banks. Moreover, it
appeared to us desirable not to content ourselves with
simply reproducing the general balance sheet of all the
36 banks, as drawn up by the board of note-bank inspectors ; this general balance has been supplemented by three
additional ones, made up from the various annual balance
sheets of the separate banks, each of which permits a
judgment to be formed concerning one of the three legally
admissible classes of banks.
Conditions of cover according to the general statement of December 31,

1004.

Nature of cover of notes.
Cantonal
Stock
guaranties. deposits.
A.
Per cent.
Cover by cash funds—
Of the note circulation __
_ __
Of the note circulation and the
Of all debts to third parties _ _ _
Cover by cash funds, b y other cash assets, and by short-time claims—
Of the note circulation and the

5.60

Of all debts to third parties

9- 79
53

Per cent.

Bill portfolio.

Per cent.

All banks.

Per cent.
47.80

16.52

33-65

19.85

4. 19

32.91

6.97

33-71

43-Q3
42.09

32.71
11.49

8.56

National

Monetary

Commission

Conditions of cover according to the general statement of December 31, 1004Continued.
Nature of cover of notes.
Cantonal
Stock
guaranties. deposits.
Banking cover—
Of the note circulation and the
short-time liabilities
Of all debts to third parties

Per cent.
68.97

Bill portfolio.

All b a n k s .

Per cent.
66. 49
16.88

Per cent.
93-17
9 1 . 14

72. 61

11-54

29. 09

14. 28

23.01

31-54

42. 75

29. 70

22.36

Per cent.
25.52

B.
After deducting the 40 per cent from
the note circulation and from the cash
assets:
Cover by available cash funds of
the note circulation and the
short-time liabilities
Cover by cash funds and short time claims of the note circulation and the short-time liabil-

The above figures appear to us worthy of attention in
more than one respect. Above all, the fact forces itself
upon our notice that the banking cover for all short-time
liabilities decreased from 106 per cent to 67 per cent, and
that the increase of the item " available cash and shorttime claims" was slower by about one-half than that of
the items "uncovered bank-note circulation" and "shorttime liabilities." Another important point is that within
the last-named item it was precisely the short-time part
of the savings-bank deposits that showed the greatest
augmentation, which gives a less favorable impression as
regards the quality of the cover than would be derived
from a merely quantitative consideration of the ratio of the
figures.
As was to be expected, conditions varied very much as
between the different classes of banks. While the banks
54

The

Swiss

Banking

Law

t h a t covered b y bills t h e 60 per cent of their circulation
n o t secured b y specie approached in every respect t h e
condition which m a y be designated as t h e normal condition of a b a n k of issue, t h e banks t h a t covered b y cantonal
guaranties deviated most from this normal condition.
W i t h t h e former 33.65 per cent of their b a n k notes and all
other short-time liabilities are covered b y specie and with
t h e latter 17.24 per cent; t h e metallic cover for all liabilities to third parties reaches 33 per cent with t h e former
a n d only 5.6 per cent with t h e latter; t h e banking cover
for all debts to third parties is 91.14 per cent with t h e
former and only 22.36 per cent with t h e latter. After
taking off t h e legally fixed 40 per cent of t h e note circulation from t h e total of t h e cash assets, t h e remaining 60
per cent of t h e circulation and t h e short-time liabilities
show a metallic cover of 29.19 per cent in the case of t h e
bill banks and only 12 per cent in t h e case of t h e banks
with cantonal guaranty.
These dissimilarities were not only a menace to particular weak banks, b u t they actually endangered t h e entire
system of t h e Swiss banks of issue. When some of t h e
banks with immediate liabilities of hundreds of thousands
of francs h a d available cash assets of only a few thousand
francs, n o t only did their own solvency become questionable b u t t h e y endangered t h e situation of all t h e b a n k s ;
for it can not be doubted t h a t if a single b a n k h a d been
forced to suspend payments, even if only for a short while,
t h e effects of this disaster would have been felt b y all t h e
other banks, and this to such an extent t h a t even banks
most fully provided with cash assets would have experi55

National

Monetary

Commission

enced, if only temporarily, difficulties in promptly meeting
their obligations.
Let us once more look into t h e figures of t h e joint statem e n t of all t h e banks, and t h e fact will at once strike us
t h a t for every ioo francs of assets only 6.59 is represented
b y cash, 11.94 b y bills, and nearly all the remainder b y
investments of a long-time character; among which again
69 per cent consists of investments t h a t are the most difficult to realize on, namely mortgage investments, which
are t h e main p a r t of t h e item " o t h e r long-time claims.''
I t m u s t also be borne in mind t h a t t h e composition of t h e
investments differed in t h e several classes of banks. I n
banks t h a t cover their notes b y bills, out of every 100
francs of assets 61.03 a r e banking cover, while 8.67 are
stocks, and of t h e remaining 30.30 only 14.17 consist of
" o t h e r time c l a i m s ; " b u t banks with cantonal guaranties only show 19.5 per cent banking cover, t h e investments in stocks account for another 8.98 per cent, a n d t h e
remainder of 67.67 per cent consists of " o t h e r t i m e
c l a i m s " and principally of mortgage investments. Between these two categories, b o t h in respect of their importance and their condition, were t h e banks which secured
their note holders b y depositing stocks for the 60 per
cent of their issue which was not covered b y specie.
I n order t o make possible a conclusive j u d g m e n t on
these figures, we set side b y side with t h e joint s t a t e m e n t
of t h e Swiss banks of issue for t h e 31st of December, 1886
and 1904, those of t h e German Reichsbank a n d t h e Belgian
National Bank of t h e same dates, t h a t of t h e B a n k of
France of 24th December, 1886 and 1904, and t h a t of t h e
56

The

Swiss

Banking

Law

Bank of Holland for March 31, 1886 and 1905 (see tables,
pages 58-60).
W h a t is first of all forced upon our notice on examining
these figures is t h a t t h e ratio of cover suffered diminution
all along t h e line. W i t h t h e Swiss banks of issue t h e
metallic cover fell from 53 to 49 per cent; with t h e Reichsb a n k from 66 to 58 per cent; with t h e Belgian National
Bank from 27 t o 17 per cent, and with the Bank of Holland from 77 t o 58 per cent; further, t h e banking cover
for short-time liabilities fell from i n t o 71 per cent with
the Swiss banks of issue; with t h e Reichsbank from 96 to
89 per cent; with t h e Bank of France from 87 to 86 per
cent, and with t h e Belgian National Bank from 95 t o 94
per cent. If we ask after the causes of these changes we
get an answer t h e significance of which, as bearing on
t h e condition of t h e bank, is different for t h e different
institutions. W e t h u s learn t h a t the Belgian National
Bank, which occupies a unique position in more t h a n one
respect, m a y hold a large p a r t of its special note cover in
foreign bills instead of in legal cash or bullion; we m a y
likewise pass over t h e Bank of Holland, for which t h e deviations are very slight and t h e condition of which, moreover, shows no important changes. There remain consequently t h e Swiss banks of issue, t h e Bank of France, and
t h e Reichsbank, for which this fall in the ratio of cover
calls for explanation. A glance at t h e tables suffices t o
give t h e answer. The cause of this deviation in t h e case
of t h e Reichsbank, as well as of the Bank of France, lies
in t h e fact t h a t t h e extraordinary increase in t h e transfer
transactions necessitates large sums of cash deposits
57

SWISS AND FOREIGN BANKS OF ISSUE.
Summary balance sheets for end of 1886 and 1904.
Swiss banks
of issue
(million
francs).

Overman
Reichsbank
(million
marks).

1886.

1904.

1886.

134
95
40

234
218

1, 009

269

574
271
801

Bank of
France
(million
francs).

Belgian National Bank
(million
francs).

Bank of
Holland
(million
florins).

^
3
&

1904.

1886.

1904.

1886.

1905.0

1, 600 2, 719 4 , 2 5 8
822
609
671

379

694

214

259

241

271

1904.

1886.

LIABILITIES.

Note circulation
Short-time liabilities in current account, etc
Short-time savings-bank deposits
Total of short-time liabilities- _ _ _

2, 209

3,39o

5,o8o

454

788

668 1, 646 1,305

2, 212
1

3,397
14
228

5,092
16
224

455
4

797

3 , 639 5 , 3 3 2

530

881

263

297

3,768

IOI

119

164

150

138

185

298

Total of liabilities to third parties
Joint accounts (compensated)
Own capital and reserves-Total liabilities

_ _

_
__

122

1,304

IOI

Other long-time liabilities

295

i43

b 259

144

813

1. 90S

1,451

2,458

71
3

115

670

927

179

705

965

245

241

ASSETS.

Cash in hand, coin and bullion _
__
Other cash assets, without own notes

Total cash and available assets

2,391

3.768

164

170

Domestic discount bills
Foreign bills__
Total of banking cover
Loans on collateral

__
__

Total cover, including loans on collateral _
Stocks and public securities
__ _ _
_ __
Other assets of all kinds _
Total assets
a
b
c

161

200

523

966

299

410

1, 2 5 1

116

342

455

174

396

1, 2 7 6

813

1,905

555

J 216

394

164

625

247

i,977

2,946

4,393

431

743

216

215

268

560

1.367

2, 192

3. 214

4,893

443

775

257

286

186

223

213

202

216

i,45i

2,458

3,639

5,332

530

882

263

Balance sheet of March 31, 1905.
Of which amount 6,500,000 francs are not paid up yet.
Of which 150,000,000 marks are capital, 65,000,000 marks surplus, and 30,000,000 marks paid in for new state bank shares.
June 7, 1899, art. 1.)

297

(Law of

CSS

Comparisons of the composition and cover proportions based upon the table of summary balance sheets.
vswiss oanKs
of issue.

German
Reichsbank.

Bank uf
France.

^
fc

ucigiau
National Bank,

^
fc
Note circulation as percentage of—
The short-time liabilities
The entire amount of indebtedness to third parties
Cash holdings of coin and bullion as percentage of the bank
cover
Banking cover as percentage of total assets

P.ct.
50

24
37

P.ct.
4 0 . 76

P.ct.

P. ct.

P.ct.

P. ct.

P.ct.

P. ct.

72.43

83.82

14. 22

77
77

72.33

83.62

28.05
2 1 . 52

53
86

46.89
80.43

85-7.7

16. 02

82.39

84.23

6.99

5i
Si

57-94
41.96
41.91

31-19
10.87

54
54

43-68

23.48

43-63

175-21
71-43
24.91

124

123-55

108

83
83

P.ct.

88.07
87.08

P. ct.
95-57
95-57

60. 73
83-17

COVER IX PERCENTAGES.

By cash funds—
Of the note circulation
Of all the short-time liabilities
Of all liabilities to third parties
By the cash and other available assets—
Of all the short-time liabilities
Of all the debts to third parties
Recognized banking cover—
Of the note circulation
Of all the short-time liabilities
Of all the debts to third parties

49- IS
20. 04

36
14
223
in
45

96
96

89. 49
89.36

55-35

23. 21

68
68

63. 10

114

107.06

101

95-37

95
95

94.09

91. 14

93- 22

91. 14

15- 10

14-93

57-91

77
68
68

17. 15
70

55-35

63. 10

The

Swiss

Banking

Law

which do not bear interest. This causes a very considerable increase on t h e debit side of t h e balance sheet under
the head of demand liabilities, while on t h e other side of
t h e balance sheet there is no corresponding increase in
constantly available funds; nor is it necessary, on banking principles, t h a t such increase should take place in t h e
same degree as in t h e case of bank notes. For it is exactly
this transfer business, carried on by means of these noninterest-bearing deposits, which continually enlarges t h e
difference between t h e total turn-over on t h e one h a n d
and t h e total of the currency funds needed for this turnover on t h e other, and which, therefore, renders it possible
for t h e b a n k t o alter t h e composition of its banking cover
in favor of its bill portfolio as against its cash holdings.
For every ioo francs of t h e assets which served as recognized cover, t h e a m o u n t of cash in t h e vaults of t h e Germ a n Reichsbank was 53 francs in 1886 and 47 francs in
1904; in t h e same period the proportion of t h e bill portfolio to t h e total assets increased from 38 to 41 per cent.
The explanation respecting t h e Swiss banks of issue is,
however, of a different nature. W i t h a few exceptions
the deposit-and-transfer business is not carried on by
these banks, and it can therefore be assumed at the
outset t h a t not the same factors account for the deviation in t h e composition of their cover as in t h e case of
the banks previously dealt with. W i t h t h e m t h e cause
lies, on t h e one hand, in a development of t h e composition
of investments entirely different from t h a t in t h e case of
the other banks and, on the other hand, in t h e development
of their liability transactions. I t is true t h a t t h e total
61

National

Monetary

Commission

of their cash funds and their available outstanding debts
rose from 96,000,000 to 179,000,000 francs (or nearly
doubled), but, on t h e other hand, the total of t h e note circulation and t h e aggregate of t h e demand liabilities more
t h a n doubled in t h e same period, while t h e bill portfolio
increased only from 203,000,000 t o 231,000,000 francs,
a n d consequently t h e banking cover for short-time obligations fell from 111 per cent in t h e year 1886 to 71 per
cent in the year 1904. The entirely different character
of these changes is clearly brought to light b y the fact
t h a t , while t h e banking cover of t h e bank notes in t h e case
of t h e Reichsbank was 124 per cent in 1886 and 123.5 per
cent in 1904, t h e corresponding figures for t h e Swiss b a n k s
of issue were 223 per cent for 1886 and only 175 per cent
for 1904, and though the notes of the Reichsbank are still
72 per cent of all t h e short-time liabilities those of t h e Swiss
banks of issue are only 41 per cent. We see, likewise, on
t h e side of assets t h e most unfavorable composition in
t h e Swiss banks of issue. For every 100 francs of assets
t h e Reichsbank shows 80 per cent in regular banking cover,
the Bank of France 82 per cent, t h e Belgian National
B a n k 84 per cent, t h e Bank of Holland 83 per cent, and
t h e Swiss banks of issue only 21.5 per cent.
The only bright side which the Swiss banks of issue
present is the ratio of their own means (share capital and
surplus) to their liabilities to third parties; this can be
explained by the fact t h a t the law of March 8, 1881, p u t
t h e limit of the issue of notes of each bank at double t h e
a m o u n t of its share capital or authorized capital, which
brought about in the course of time a large increase in t h e
62

The

Swiss

Banking

Law

a m o u n t of banking capital. The amounts owned b y the
banks form about 14 per cent of the liabilities of t h e Swiss
banks of issue, with t h e German Reichsbank only about
10 per cent and with t h e Bank of France only a little over
4 per cent. I t is altogether beyond the range of probability, even if we take a very pessimistic view, t h a t oneseventh of all t h e assets of the Swiss banks of issue could be
permanently lost, and for so much as this their own means
furnish security. The ultimate solvency of t h e banks,
which was foremost in the minds of t h e legislators in the
year 1881, appears to be assured beyond all doubt. This
conclusion will not be impaired upon an examination of
the various items as regards their realizability. I n point
of facty it has never been questioned.
As regards t h e other points in question, our comparison
shows t h e following results: (1) As regards t h e cover in
specie for the note circulation, t h e Swiss banks of issue rank
behind t h e German Reichsbank, t h e Bank of France, and
t h e Bank of Holland; only t h e Belgian National B a n k
shows a still more unfavorable proportion. (2) As regards
t h e cover in specie for all the short-time liabilities, t h e
Swiss banks also take the fourth place and are only ahead
of the Belgian National Bank in this respect also. (3) As
regards the metallic cover for all liabilities to third parties,
the Swiss banks of issue take lowest rank; with t h e m it
is 7 per cent; with the Belgian National Bank it is 15 per
cent; with t h e German Reichsbank 42 per cent; with t h e
Bank of Holland 55 per cent, and with the Bank of France
74 per cent. (4) As regards regular banking cover for all
liabilities, t h e Swiss banks of issue again t a k e last place,
63

National

Monetary

Commission

a n d t h e difference between t h e m and the other banks
named is greatest here; it is 25 per cent against a cover
varying from 86 to 91 per cent in the case of t h e other
four banks.
W e m a y sum u p t h e result of these investigations as
follows: The object of the act of March 8, 1881, to save
t h e note holders from ultimate loss has been achieved to t h e
fullest extent. Since this law entered into force t h e Swiss
banks of issue have departed more and more from the
normal condition of a bank of issue, which assures not. only
t h e ultimate solvency of the bank, b u t also its actual solvency a t all times.
SECTION III.—EXCHANGE POLICY.

The course of Swiss exchange is most clearly illustrated
in t h e development of the rate for bills on Paris. Paris
is the center where the largest engagements of Swiss
commerce and industry are settled for international a n d
especially over-sea transactions. Most of t h e supplies of
corn, cotton, silk, coffee, oil, petroleum, etc., which come
from Italy, North and South America, Roumania, or
Russia, can be paid for only b y drafts on Paris. For a p a r t
of these supplies, indeed, especially from India and South
America, p a y m e n t is due in London, b u t in reality this
is almost always effected through the agency of t h e Paris
market. If we now study t h e development of t h e F r e n c h
exchange rate we obtain a surprisingly unfavorable
picture.

The

Swiss

Banking

Law

Rates of exchange.
Average.

Year.

i»9o
1891
1892
1893
1894
1895
1896
1897
1898
1899
1900
1901
1902
1903
1904

ioo.14

99.9o

100.16

100.00

IOO.2 2

IOO.OO

IOO.IO

99.85
99.90

100.13
100.04

100.24

99.89
99.85
99.85

100.35

100.00

100.36

IOO.12

100.49

IOO.2 2

100.54

100.29

100.14

99-75

100.30
100.04

99-97 j
99.82

100.15

99.85 1

IOO.IO

Lowest.

Highest.
100.32
100. 32
100.45
100.31
100.39
100.26
100.34
100.48
100.69
100.71
100.80
100.80
100.52
100.70
100.23
100.50

These figures speak very plainly indeed. They prove
that the exchange rate for bills on Paris had a continual
upward tendency from the year 1894 to the v e a r 1900,
inclusive. I t attained in the year 1900 an average height
which is higher than the maximum rate of the years 1889
to 1896, and even the lowest rate of the year 1900 is above
the gold point and is higher than the average rate of the
years 1889 to 1896, inclusive. With the year 1901 an
improvement of the situation set in. At the end of February, 1901, the rate for Paris fell below the gold point—
a thing which had not occurred for fully two and one-half
years. The reason that since then the line of development
differs from that up to 1900 is that in the years 1901-2
and 1902-3 large amounts of Swiss investments were
placed in France, and this resulted in the import of large
sums of cash funds from France into Switzerland; and that
since 1904 an increased demand for Swiss bills, producing
83700—10

National

Monetary

Commission

a like effect, made itself manifest in France; and this in turn
is explained by the fact that the French money market was
in an abnormal condition, chiefly owing to the effects of
having large deposits for Russian war loans lying in Paris.
The actual issue of these war-loan bonds had to be delayed,
although interest was being paid thereon, and these
deposits were consequently used for profit-earning transactions.
If we now proceed to compare the rate of exchange on
Paris with that on London and that on the German banking centers we shall find that there exists a parallelism
between the two latter rates and the first named.
Yearly

average rate of exchange for bills on foreign banking

Paris

German
bank
centers. c

123.54
123.63

IOO 0 4
IOO

100.72

123.36

IOO. 13

1900

IOO

190 r

IOO

1902

IOO

3°

1903
1904

IOO. 13
IOO. 0 4
IOO

IOO. 24
I O O . 35
IOO

I O O . 49

& For £4.

London. b

100.72
100.84
100.64
100.96
100.92
100.92
101.40
101.32
101.04
100.76
100.88
100.60

1892.
1893
1894
1895
1896
1897
1898.
1899

a For i c o francs.

centers.

123.38
123.51
123.71
123.88
124.06
123.91
123.48
123.33
123.29
123.06

c For 100 marks.

An explanation of this upward tendency of the foreign
exchange rates has been sought chiefly in the longcontinued rise of the adverse balance of trade of Switzerland, and the consequent unfavorable condition of the
balance of international payments.
66

The

Swiss

Banking

Law

I t is known t h a t Switzerland's balance of t r a d e grew
materially wTorse in the years from 1885 to about 1900.
Several of t h e surrounding States adopted protective
tariffs, and as a result m a n y articles could no longer be
exported in t h e same quantities, or not at all, to either
Germany, France, Austria, or Italy. On the other hand,
t h e imports of foreign products continually increased, and
it was inevitable t h a t t h e adverse balance of trade should
grow steadily greater. The excess of imports, which was
only 47,000,000 francs in 1885, had increased b y 1899 t o
363,000,000. In order to judge these figures properly, we
must not lose sight of the fact t h a t t h e increase in t h e
excess of imports is only due in a very small degree to an
increased import of manufactured articles; it is chiefly due
to t h e fact t h a t in t h e second p a r t of t h e nineties there was
a very considerable expansion of Swiss commerce and
industry, which brought about the investment of large
sums in foreign machinery, etc., increased activity in t h e
building trades, and a very greatly increased demand for
foreign raw and partly finished materials. And we can
already see t h e fruit of the establishment of new industries
and the development of those already existing. Since t h e
middle of 1898 t h e exports of Switzerland have uninterruptedly increased from quarter to quarter; t h e excess of
imports fell from 363,000,000 francs in 1899 to 254,000,000
in 1902; since then it has again shown an upward tendency,
chiefly owing to the rising tide in general business.
If we now compare the course of the balance of t r a d e
with t h a t of t h e rate of French exchange, we can not help
discovering a certain parallelism between t h e two series of
67

National

Monetary

Commission

figures concerned. The parallelism can not, of course, be
uniformly the same throughout, as the rate of exchange on
France was also influenced by other factors, which will
be dealt with further on.
[In millions of francs.]

Imports.

Year.

1895 _ . . . __ __

O K . 8<?

1896.

993.85

I 03I. 2 1

1897
1898
1899.
1900.
1901

_
_..

065.30

159-94

i n . 11

I 050.00
I

128.51

1903

196.16

1904

240.07

Bxcess of
imports.

Exports.

663.36
668.26
693.i7
723.82
796.01
836.08
836.56
874.30
888.52
891.47

252.49
305.59
338.04
3 4 i - 47
363-93
275-03
213-43
254.21
307.64
348.60

Per cent of
excess.

Average r a t e
of exchange
for bills
on Paris.

38. 1
45
48
47
3i
32
25
28
34
38

7
8

100.24

100. 36

100.35

5
8

100.54

100.14

100.04

100.15

There can be no doubt that this parallelism is due
to a causal connection between the two phenomena—
the change in the balance of trade and the course of foreign exchange. From this indisputable fact a ' t h e o r y
of indebtedness" (Verschuldungstheorie) was deduced,
which was intended to furnish a complete explanation of
the unfavorable state of foreign exchange, and which was
best presented by Doctor Geering, who laid special stress
on the merchandise balance; he looked upon the merchandise balance as that part of the balance of payments
which was statistically most readily ascertainable, and
which was for Switzerland by far the most important;
and he did not hesitate to declare that the course of the
Swiss exchange rates was in great measure, if not exclusively, dependent on the balance of trade.
68

The

Swiss-

Banking

Law

Toward t h e end of t h e nineties persons who were skeptical about t h e Geering theory, mostly on account of t h e
Paris rate of exchange remaining steadily above t h e gold
point, made themselves heard. The annual report of t h e
Swiss Handels- und Industrieverein for the year 1898
observes: " I t almost seems as though t h e unfavorable
balance of Switzerland's international t r a d e no longer
sufficed to explain t h e unfavorable condition of foreign
exchange." Subsequent developments do n o t support
Doctor Geering's theory, as even after t h e unprecedented
improvement of the Swiss balance of trade which set in
in t h e years 1899 and 1900 t h e yearly average rate of
exchange on Paris showed no corresponding decrease, a n d
its course since 1901, as above shown, can not be completely explained b y t h e improvement in t h e balance of
trade.
I n a somewhat different manner this " t h e o r y of indebte d n e s s " was presented b y W. Speiser, who, in contrast
with Geering, laid chief stress not on the adverse balance
of Switzerland in merchandise transactions, b u t on its
adverse balance in t h e international movement of capital.
H e expressed t h e opinion t h a t t h e indebtedness of Switzerland to other countries was due to the large share which
foreign, and especially French, capital had in Swiss enterprises and t h e large a m o u n t of Swiss securities placed
abroad, particularly in France. The French capital
which was released through t h e stagnation of enterprise
in its own country caused b y M. Meline's economic policy
was placed abroad, partly in temporary, partly in permanent investments, and for a number of political and his-:
69

National

M o n et ar y

Commission

torical reasons found its way into Switzerland in specially
large measure. The p a y m e n t s of interest and dividends
on these investments which h a d t o be remitted to France,
a n d also occasional repayments of capital sums, very
greatly increased the extent of t h e payments to France
a n d as a consequence affected t h e rate of exchange for
foreign bills.
A point which speaks from t h e very first against t h e
" t h e o r y of indebtedness" as presented in t h e views of
Geering, is the fact t h a t if Swiss business had really m a d e
such considerable deficits year after year as would account
for the high rate of exchange in accordance with this
theory, this could n o t have been without effect on t h e
•country itself, in two directions; it would necessarily h a v e
brought down t h e country's taxable capacity and it would
have led to a reduction of t h e standard of life of the
masses of the people. B u t on t h e contrary t h e taxable
capacity of nearly every canton has all along been, and
still is, increasing, and it would be difficult to show t h a t
t h e rising demands as to t h e standard of life have not
been satisfied, except in times of crisis.
Quite aside from this indirect argumentation, the two
theories, t h a t of Geering as well as t h a t of Speiser, are
untenable for the simple reason t h a t they do not really
explain the phenomena for whose explanation they were
constructed. Both furnish an explanation of the rising
r a t e for foreign bills, b u t neither can explain the fact t h a t
t h e 3^early average rate of exchange on Paris was a.ble to
maintain itself in the years 1896 to 1900 at from 4 to 34
points above t h e gold point—4 in 1896 and 34 in 1900;
*
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nor why the maxima stood above the gold point for a long
time and even the minima in the years 1899-1900 did not
fall below the gold point.
An explanation of this phenomena was given for the
first time b y K a l k m a n n in his Untersuchungen uber das
Geldwesen der Schweiz und die Ursachen des hohen Standes
der auswdrtigen Wechselkurse, w^hich has been subjected
to sharp criticism, b u t has never yet been refuted.
W h a t follows is based in the main on Kalkmann's discussion of t h e subject.
The system of t h e gold-premium policy of t h e Bank of
France is well known; it is also known t h a t this goldpremium policy has so far not had any detrimental effect
in France, and this simply for t h e reason t h a t France does
not really need such a policy in view of her favorable
balance of payments. When, a t times, it becomes necessary to make large payments abroad, it is easily possible
to withdraw gold from the French circulation, which is
saturated with gold, and this puts a limit to the rise of the
gold premium; whenever an unfavorable condition of the
international money market has been long-continued, the
Bank of France has always abandoned its gold-premium
policy, and has resorted to a raising of the rate of discount,
as the gold-premium policy was incapable of protecting
the stock of gold.
The effects of this French gold-premium policy are,
however, of a different nature as far as Switzerland is concerned. As a member of the Latin Union, Switzerland
stands in very close relationship with the French money
market, b u t as a result of the constitution of her banking
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Commission

system she enjoys the disadvantages b u t not the advantages of this relationship.
For a number of years preparations have been under
way in Switzerland to go over to the gold standard and,
in view of this prospective change of standard and t h e
marked depreciation of the silver 5-franc pieces, the b a n k s
have found it desirable to get rid of their silver holdings.
While t h e total of their metallic reserves increased from
57,000,000 to 115,000,000 francs between 1883 and 1904,
their holdings of silver fell in the same period from
35,000,000 to 11,600,000 francs, and actually they now
form only about 10 per cent of their total cash holdings.
Now, there are two considerations which influence t h e
banks, in spite of having this large stock of gold—aside
from times when circumstances are peculiarly favorable—
not to p u t any gold into circulation, and which lead to t h e
result t h a t variations in the stock of metallic money,
above all in critical times, t a k e place almost exclusively
in t h e silver holdings. The banks hold the gold tight, so
as t o stand ready when the gold standard is introduced,
and moreover they are more or less forced into this policy
by the French gold premium.
The French and Swiss gold coins and silver 5-franc
pieces being unlimited legal tender in both countries
according to the terms of the Latin coinage agreement,
French commerce would settle t h e whole of its obligations
t o foreign countries b y way of Switzerland, if there were a
premium on gold in France and a t the same time it was
possible to obtain gold over t h e counter in Swiss b a n k s
without having to pay a premium; the international
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Law

arbitrage business would not fail to take advantage of
such a state of affairs; silver coins would be imported into
Switzerland from France in order to be exchanged here
at par for gold and this gold would then be imported into
France and sold there at a premium; and these operations
would be repeated until the gold holdings of the Swiss
banks had melted away to nothing. If Switzerland is in
the debt of either Germany or England, or if differences
in the strain of the Swiss and the foreign money market
cause the sending of capital abroad and if the total of the
payments to be remitted abroad is in excess of the foreign bills held in Switzerland, then the missing amount
must be sent off in gold. But since precisely in such times
the banks of issue do not give out any gold at par, and since
gold is not to be found in the channels of trade and can
not, therefore, be withdrawn from trade as in France, it
follows that the cost of the export of gold is increased by
the amount of the gold premium, which in effect is equivalent to the raising of the gold point by the same amount
As, however, it is always possible to obtain gold from
France in exchange for silver coins of the Latin Union by
paying the gold premium, an upper limit is placed upon
the rate of exchange for bills on any of the states that
do not belong to the Latin Union. This maximum
rate of exchange can always be ascertained by adding to
the cost of sending gold from France to the country that
is to receive the payment, and of exchanging it for legal
tender currency of that particular state, the cost of
transporting silver coin from Switzerland into France and
the premium that has to be paid in Paris.
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I n t h e adhesion of Switzerland to t h e Latin coinage
agreement a n d in the working of t h e French goldpremium policy is accordingly to be found t h e explanation
of t h e rise of exchange rates upon all those countries t h a t
do not belong to t h e Latin Union above the gold point.
T h e question now arises, How can it be explained t h a t
t h e r a t e of exchange for French bills also, in spite of
t h e uniformity of standard, has stood for long periods so
considerably above the gold point ?
Settlements between Switzerland and France are
generally effected by sending foreign bills and checks t o
France. For reasons already stated, t h e a m o u n t payable
to Paris is generally larger t h a n t h a t receivable b y Switzerland, and in this case t h e d e m a n d for bills can not be
covered and t h e rate for French bills goes up rapidly.
W h e n it reaches 100.25 the export of silver to France
becomes profitable.
Most of the great banks of issue, especially the German
Reichsbank and the Austro-Hungarian Bank, act in
similar cases in t h e following m a n n e r : They throw a p a r t
of the foreign bills they hold in their portfolios upon t h e
open market and this causes a depression in t h e rate of
exchange, and the danger of gold export is for the m o m e n t
averted. The depressing effect on the exchange rate
produced b y t h e sale of foreign bills on the p a r t of t h e
central bank is supported by yet another factor: Many
years' experience having shown t h a t at the m o m e n t when
t h e Reichsbank begins to sell English bills, for instance, t h e
London exchange rate has already reached its m a x i m u m
and t h a t a further increase is not probable, b u t t h a t a drop
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The

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Law

in t h e r a t e m a y be expected with certainty, it has become
a n established custom t h a t as soon as t h e Reichsbank parts
with foreign bills other banks follow suit a t once, well
knowing t h a t a t this moment t h e best rate of exchange is
obtainable. I n consequence of this increase in t h e offers
of foreign bills, the r a t e of exchange falls as a m a t t e r of
course; and if it was only a question of a temporary unfavorable change in t h e rate of exchange, the danger of an
outflow of gold has passed without t h e Reichsbank
having found it necessary to raise its discount rate.
The policy pursued by t h e Swiss banks of issue in like
cases was in direct opposition t o this policy. T h e cover
in specie, as previously stated, amounted t o say 50 per
cent or a t t h e best 55 per cent, and this includes t h e 40
per cent of t h e a m o u n t of t h e circulation which could not
be touched. As this cover in specie, moreover, consisted to
t h e extent of about 90 per cent of gold and as t h e banks
did not wish t o touch this gold, fearing t h a t it would be
exported to France, t h e whole of t h e Franco-Swiss p a y m e n t
operations rested in reality on t h e insignificant stock of
silver t h a t was split u p among t h e thirty-six banks. When
t h e rate on Paris exceeded 100.20 or 100.25 and consequently silver was withdrawn for export, then t h e Swiss
banks of issue had to b u y bills on France in order not to
be entirely without available ready money and in order
t o reimport, as soon as possible, t h e silver t h a t h a d been
drawn from t h e m . Accordingly while t h e German Reichsb a n k a n d t h e Austro-Hungarian Bank, t h e instant t h e gold
point is passed, offer foreign bills for sale in order thereby
t o depress t h e r a t e of exchange, t h e Swiss banks of issue,
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in t h e same situation, figured as buyers of foreign bills
and b y their purchases drove t h e r a t e of exchange still
higher up.
This explains why it is possible for t h e Paris exchange
r a t s to get beyond t h e gold point in spite of t h e uniformity
of the currency; t h e relief of t h e bill m a r k e t b y silver
exports was counterbalanced by t h e purchase of foreign
bills on t h e p a r t of t h e banks of issue. There was no
longer any upper limit for t h e French exchange r a t e ,
because every export of silver t o France created an increased d e m a n d for French bills, and parallel with this went
t h e rise of t h e r a t e of exchange for these bills. As t h e
dependence of Swiss exchange rates upon t h e height of t h e
French gold premium of itself goes far t o explain why t h e
gold point, elsewhere a fixed q u a n t i t y , has in Switzerland
a variable character and rises and falls with t h e Paris goldpremium, it followed, from t h e situation just depicted,
t h a t t h e gold point ceased t o enter at all into t h e determination of t h e r a t e of exchange for Paris bills, a n d t h e Swiss
currency consequently in this respect took on t h e character
of a depreciated paper currency.
I t was not long before speculators began t o t u r n this
situation t o their advantage. We do not refer to t h e export of metallic money for t h e settlement of business obligations, b u t to t h e regular business of sending silver 5-franc
pieces across the French frontier, which is known in business circles as " Drainage." The entire process is extremely simple, and involves no risk for t h e speculator. I t
does not yield a large profit, b u t t h e profit is certain, a n d
t h r o u g h t h e possibility of frequent repetitions of t h e opera76

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tion may be made very considerable. The manipulation
is carried out in the following manner: The speculator
presents at the counter of a Swiss bank of issue Swiss bank
notes and demands hard cash for the same, which the
banks are legally bound to furnish; this hard money he
dispatches across the French frontier, where it is also legal
tender. He exchanges it there either for notes of the
Bank of France or for checks on Paris. These he brings
home to Switzerland, where he never has any difficulty in
selling them, pocketing a larger or smaller profit according to the height of the rate of exchange for bills on Paris.
The Swiss bank notes received in payment are again presented at the counter of a bank of issue for redemption in
hard cash, and the game is played afresh. The " legitimacy " of this "draining" operation could not be questioned, and it was therefore impossible to combat it
directly; and the minor difficulties placed in its way at
first by the banks could not have the slightest effect.

National

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The following table will give an idea of the e x t e n t of
these operations: a
I m p o r t s a n d e x p o r t s of silver m o n e y from, o r t o , S w i t z e r l a n d (in m i l l i o n s of f r a n c s ) .
R a t e c)f e x c h a n g e 0n P a r i s .
Total transactions.

Year,

Imports.

1892 _...

1893--i894_.. _

Franco-Swiss transactions.

E x c e s s (4-)
defect ( - )
of i m p o r t s .

Exports.

26. 6
S3- 5 0 4 2 . 6 ( 3 1 . 2 )
26. 3 0 3 4 . 0 ( 1 6 . 5 )

31-3

4-7

9-1

(+2.3)

ImExports. ports.

Excess
of i m ports.

Average.

Maximum.

27.9

24. 2

3- 7

100.10

100. 31

29. 7

27-3

2. 4

100.13

1 0 0 . 3 9>

14. 1

8-5

100.04

100.26

20.8

21. 1

100.10

r o o . 34

27-3

20.3

100.24

100.48

53-3
68.9

34- 1

19. 2

100.35

100.69

37- 2

100.36

100.71

1895-..1896 _.._

44- 2

23- 9

49-3

28.6

- 7-7 ( + 9 - 8 ) 2 2 . 6
+ 20. 3
41. 9
+ 20. 7
47.6

1897---1898-.. _

67.0

37-2

+ 29.8

76. 9

40. 5

1899---

110. 2

45 • 3

+ 36.4
+ 64.9

102. 9

4i. 7

3i. 7
61.3

100.49

100.80

1900

84. 0

32.0

+ 52. 0

79-5

28. 2

47-3

100.54

100.80

1901

34-3
61.6

11. 3

+ 23. 0

30. 2

8-7

21-5

100.14

100.52

1902

+ 45-9

56.3

13- 1

43- 2

100.13

1 0 0 . 70'

1 9 0 3 - ...

25.8

IS- 7
7-5

+ 18.3

23. 2

5- 2

18.0

100.04

100.23

1904

41. 7

12.7

— 29. 0

38.7

10. 4

28.3

TOO.IS

100. 50

;

a T h e l a r g e e x p o r t figures of t h e y e a r s 1893 a n d 1894 a r e s u b s t a n t i a t e d b y t h e f a c t
t h a t a b o u t 29,000,000 f r a n c s of I t a l i a n , s u b s i d i a r y c o i n s w e r e r e j e c t e d , in a c c o r d a n c e
w i t h t h e t e r m s of t h e c o n v e n t i o n . T h e figures i n p a r e n t h e s e s g i v e t h e traffic a f t e r
deducting the Italo-Swiss turnover.

As to the reasons for these extraordinary proceedings in
t h e Franco-Swiss metallic-money traffic we need not lose
another word here; the explanation has been given in t h e
a In considering the above figures one must not lose sight of the fact
that the figures for the imports are far more reliable than those of the
exports. Since, from the nature of the case, it is sought to keep the drainage concealed from official notice, by far the greater part of the exports
escape the observation of the officers who gather our trade statistics.
While the export figures, accordingly, are not to be trusted, the figures
given for the import of silver coins are not only far more trustworthy but
may be regarded as furnishing the measure of the outflow of srver, including
the entire drainage. In support of this view we cite the figures for the
year 1899, in which year the declared exports showed an increase of only
4,500,000 francs as compared with the previous year, while the undeclared
exports increased by 30,000,000 francs—that is, rose to nearly double the
figures of the preceding year.
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foregoing. As regards their effects and influence we m u s t
m a k e a distinction between two sides of t h e question—
t h e influence upon t h e Swiss banks of issue themselves,
and t h e influence upon Swiss economic conditions.
This position of affairs meant such a monstrous financial load for thfc banks of issue t h a t , under t h e pressure
of these circumstances, contrary to their custom, they
aroused themselves to protect t h e currency, and entered
into a series of special agreements. How great these
losses were for some of the banks m a y be seen from the
fact that, for instance, the Cantonal Bank of Berne was
compelled to close its branch office near # the French
frontier a t Porrentruy, and t h a t t h e Bank of Geneva,
which was most exposed to the drainage, renounced its
right of issuing notes in the spring of 1899, after having
sacrificed from 1895 to 1899 not less t h a n 1,070,000 francs
for supplies of silver currency from France aggregating
173,000,000 francs.
As early as t h e year 1893 t h e plan was p u t forward b y
the concordat banks to distribute the cost of importing
silver coins among all the banks in proportion to their
note issues, instead of throwing it entirely on t h e shoulders
of t h e banks of Geneva, Neuchatel, Basle, and Berne, as
had been the case owing to the geographical position of
these towns. I t was held t h a t the importation of specie
was being carried on in the common interest, a n d t h a t the
notes, too, which the " d r a i n e u r s " presented to frontier
banks for redemption, emanated from all t h e various
banks. I t is not surprising t h a t those banks t h a t were
not directly interested in t h e subject refused t o give their
79

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Commission

sanction for a long time, a n d t h a t only under t h e pressure
of t h e events of 1899 was a scheme of united action, as
drafted b y one of t h e frontier banks, accepted. The
terms embodied in this understanding were principally
t h e following: " T h e banks agree among themselves to
m a k e good p a r t of t h e expenses which those banks t h a t
import specie from abroad incur in t h e process. Such
banks as prevent t h e export of specie b y special arrangements have also a claim to such reimbursement. T h e
committee will settle t h e details of this b y special regulations. Every b a n k agrees to contribute for this purpose
a yearly contribution not exceeding one-tenth of 1 per
cent of its actual average yearly issue of notes." This
agreement went into force on July 1, 1899.
F a r more important t h a n t h e losses sustained by the
banks is t h e injury to the general economic interests of
Switzerland and t h e endangering of her entire system of
international payments, caused b y a situation unique in
t h e history of banking—a situation, namely, in which t h e
b a n k s of issue of a country with an advanced economic
organization are able to maintain their solvency only by
continual importations of metallic money from abroad,
a t great cost, under t h e most unfavorable conditions, a n d
t o t h e injury of their own constituency. The depreciation of the Swiss exchanges h a d practically t h e same
economic effect in Switzerland as a prohibitive tariff. I n
t h e annual report for 1898 of t h e Zurich Silk I n d u s t r y
Association it is stated t h a t " t h e importation of raw silk
from t h e E a s t Indies is handicapped very considerably
b y Swiss exchange being a t a discount as compared with
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F r e n c h ; " a n d this statement was really applicable to all
supplies of foreign goods, though the burden m a y not
have been everywhere perceived. According to t h e trade
statistics, t h e loss of exchange a t the rate of 6 t o 7 per
mille would mean a yearly average of about 500,000 francs
in round figures.
T h e fact t h a t since the year 1901 the disadvantages
described have not made themselves felt to quite as great
an extent as formerly does not alter this situation or t h e
judgment which must be passed, on the strength of it,
upon t h e exchange policy of t h e Swiss banks of issue.
This judgment can not be affected b y t h e question whether
or not, owing t o other causes upon which t h e banks of
issue h a d absolutely no influence, circumstances finally
improved. For our verdict t h e fact suffices t h a t the
exchange policy of t h e banks of issue was not able to
prevent such a state of affairs as t h a t which existed in the
years 1896-1901.
We have now, a t t h e close of our investigation of the
work of t h e Swiss banks of issue in t h e field of exchange
policy, arrived a t a result just as unfavorable t o them as
was t h e result of t h e investigation of the degree of their
solvency. They have not been able to execute t h e param o u n t task of banks of issue, t h a t of protecting t h e count r y ' s exchanges a n d maintaining t h e m a t a proper height.
Although they can not be held entirely responsible for
t h e unfavorable condition of t h e rates of foreign exchange,
t h e foregoing investigations have amply shown t h a t b y
their policy in regard to investments and cover they
helped t o bring about this condition.
83700—10

CHAPTER

THE

III.

FIGHT FOR THE CENTRALIZATION
THE NOTE-BANK SYSTEM.

SECTION I.—THE NEW ARTICLE 39 OF THE FEDERAL CONSTITUTION.
The unfavorable effects of t h e act of 1881 began to
show themselves within a few years after it went into
force. Attention was repeatedly drawn, especially b y
N a t i o n a l r a t a Cramer-Frey, to t h e unsatisfactoriness of t h e
situation created b y t h e banking law. I t was this gentlem a n who first urged in the Nationalrat t h e necessity of a
reform. The motion he m a d e on J u n e 4, 1885, was as
follows: " T h e Bundesrat is invited to examine t h e question—and t o report thereon as soon as possible—whether
article 39 of t h e federal constitution should n o t be altered
t o t h e following effect: Legislation relating t o t h e banknote system is a m a t t e r for t h e Confederation. The Confederation is empowered to grant t h e exclusive right t o
issue notes to a b a n k t o be placed under its supervision
a n d m a n a g e m e n t . " In support of his motion CramerF r e y first touched upon t h e evils which were aggravated
b y the bank-note law—the untenable position of t h e
Swiss banking system and t h e dangers to which it was
subject, dangers created in p a r t by t h e law. H e t h e n
went on t o show t h a t t h e evil had its root in the system of
°See footnote p. 16.
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a multiplicity of banks with great differences in t h e n a t u r e
of their business and with conflicting interests, which
abandoned t h e most vital interests of business t o t h e
play of chance and competition; and finally t h a t t h e
system itself must be given up, as mere alterations of t h e
bank-note act could not remedy t h e evil.
By a vote of 71 to 43 t h e motion of Cramer-Frey was
defeated. His contentions were, however, not refuted.
The figures he brought forward in order to prove t h a t t h e
existing situation was untenable were met with t h e assertion t h a t " t h e solvency of our banks was beyond all
doubt and t h a t it was better t h a n t h a t of any foreign
bank."
Soon enough t h e opportunity arose for deciding t h e
question whether t h e complaints m a d e against t h e Swiss
banks of issue were justified or not. Already toward t h e
end of t h e year 1886 war rumors were current, and at t h e
beginning of 1887 t h e political outlook was so very grave
t h a t t h e Federal Finance Department saw fit to send out.
a confidential circular dated March 1, 1887, in which t h e
fear was expressed t h a t the continuous and immediate
redemption of notes in critical times was not assured in
t h e case of all t h e Swiss banks of issue, there being in
m a n y of t h e m inadequate cash holdings and sometimes
also a lack of other short-time or easily realizable assets.
The banks were requested in this circular " t o make
endeavors to reduce t h e note circulation and a t t h e same
time to strengthen their holdings of cash, so as t o have
enough funds in case unexpected events should m a k e it
impossible t o obtain specie from F r a n c e . " The circular
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>
closed with the statement that the Confederation could not
undertake any responsibility for the liabilities of the
banks in the event of hostilities breaking out, and that it
must strictly observe the terms of the law. At the
moment when this circular was sent out the rate of Paris
bills moved very closely round the gold point; the importation of metal from France was only possible with considerable loss, and, in spite of the official threat on the part
of the military authorities that the export of silver
would be prohibited, it was not found possible to prevent
several hundred thousand francs flowing out into France.
At the same time further withdrawals of money were
experienced at the counters of the banks of issue. In the
wake of the circular of the Fiscal Department, as though
to emphasize it, there followed withdrawals of specie on
the part of the Federal Treasury and notice of the withdrawal of deposits which were needed by the federal
administration to pay for the purchase of coal, provisions,
corn, and fodder; similar withdrawals were also made by
other public and private administrations and, in addition
to this, great demands were made upon the banks by
private individuals and by industrial concerns, some of
which exerted themselves, at the very beginning of the
threatening political developments, to lay in very large
cash reserves.
The history of bank crises furnishes a number of instances in which a strong central bank of issue has kept
down an incipient panic of this kind with perfect ease.
It is only necessary for the bank to discount liberally and
promptly, be it even at a higher discount rate, in order to
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prevent the belief gaining ground that there is no money
to be had at all. In words that have become classical
and which are still absolutely to the point, the governor
of the Bank of England set forth this policy during the
days of panic in 1825: " We lent it by every possible means
and in modes we had never adopted before; we took in
stock on security, we purchased exchequer bills, we made
advances on exchequer bills, we not only discounted outright, but we made advances on the deposit of bills of exchange to an immense amount—in short, by every possible
means consistent with the safety of the Bank, and we were
not on some occasions overnice. Seeing the dreadful
state in which the public were we rendered every assistance
in our power." After a day or two of this treatment, the
entire panic subsided and "the city" was quite calm.
The policy of the Swiss banks was different; several
institutions refused all requests for discounts; others
made discounting almost impossible by fixing an exorbitant discount rate and by scrutinizing the bills offered
with greatly exaggerated care; a number of other banks
again made difficulties about the redemption of notes 0
which, though it can not be excused, can at least be understood on the ground that a number of the important
banks which had several millions of hard cash lying in their
vaults had arrived very near to their 40 per cent cover
limit, which they dared not pass. Only after it had become known that the Bundesrat had resolved on the issue
a Cases occurred in which banks of issue, obeying the letter b u t violating
the intent of article 21 of the banking act, refused to send off by post the
equivalent in metal of notes sent in for redemption. They declared t h a t
they were obliged to redeem their notes only when personally presented a t
their counter.
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Commission

of federal exchequer bills in t h e event of serious complications did t h e panic subside; b u t in t h e meantime it
h a d become recognized, and was everywhere emphatically
felt, t h a t a country at so advanced a stage of economic
development as Switzerland could not permanently tolerate a banking system t h a t broke down at t h e least provocation.
Immediately after t h e political situation had cleared
up t h e fight for reform was begun with vigor. I n April,
1887, t h e question was debated a t Lausanne at t h e meeting of t h e Swiss Handels- u n d Industrieverein, and in
October of t h e same year this society submitted to t h e
Bundesrat an expert opinion on t h e bank-note system
based upon t h e result of t h e inquiries they had set on foot.
I n t h e course of 1887 the banks of issue were individually
invited b y t h e Board of Bank-Note Inspectors to submit
proposals for t h e revision of t h e law. E x p e r t opinions
were obtained from b a n k managers and economists, and
all over Switzerland a number of meetings were held.
There were two opposing views expressed in t h e report—
which reflected views then prevailing—submitted b y t h e
Swiss Handels- und Industrieverein. One of these views
was partly expressed in t h e resume given in t h e preface.
I t laid chief stress on the demand for the establishment
of a central bank, b u t it also provided for t h e case of this
d e m a n d not being fulfilled, and in t h a t event set forth t h e
amendments of the law which were to be regarded as a
minimum. These were as follows: (1) Fixing of the minimum, capital of every b a n k authorized to issue notes a t
not less t h a n 2,000,000 francs; (2) raising of t h e special
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metallic cover for t h e notes from 40 per cent of t h e a m o u n t
of issue to 50 per cent of the circulation, together with repeal of t h e absolute prohibition to touch this cash reserve,
t h e banks being given the right to let it fall to 30 per cent
of t h e circulation for a period of not longer t h a n eight days
upon notice to the Board of Bank-Note Inspectors; (3) t h e
remaining 50 per cent of the note circulation and t h e entire
a m o u n t of t h e demand liabilities to be covered b y t h e bill
portfolio; (4) restriction of t h e sphere of activity b y
excluding business unsuitable for banks of issue; (5)
levying t h e t a x payable on notes on t h e average circulation, instead of on t h e authorized issue, as hitherto.
The second proposal, notably supported b y Cramer-Frey,
Joos, and Curti, members of the Nationalrat, set itself
t h e task of establishing a central b a n k of issue. Joos
and Curti favored t h e creation of a state b a n k and
Cramer-Frey h a d in view t h e establishment of a private
central b a n k ; for this it was proposed t h a t article 39 of
the federal constitution be altered.
The Bundesrat itself delayed the drafting of a bill until
such time as t h e contemplated federal law respecting debt
recovery and bankruptcy, a large p a r t of which would
serve as basis for t h e bank-note act, might be completed.
I n t h e meantime certain preliminary work was undertaken,
a commission was asked to a t t e n d a meeting a t Berne and
a provisional draft was p u t before t h e m to deliberate upon.
Only on July 23, 1890, was a draft of a law respecting the
revision of t h e banking law of March 8, 1881, laid before
the Federal Chambers. The Bundesrat recommended in
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tern of multiplicity of banks being retained, a n d t h e reforms proposed being based mainly upon t h e report of t h e
Swiss Handels- u n d Industrieverein; b u t a t t h e same t i m e
there could be observed in t h e message a tendency in favor
of a central bank. I t was n o t surprising, considering
t h a t a revision would necessarily affect m a n y a n d various
interests, t h a t t h e bill found strong opposition in some
quarters. I t was, however, acknowledged on t h e whole
t h a t t h e revision of t h e present law was merely to be
regarded as a transitional stage toward t h e monopolization of t h e business of issuing notes.
As compared with t h e act of 1881 t h e bill of t h e Bundesr a t showed t h e following novel features: (1) Increase of
t h e minimum a m o u n t of share or authorized {dotation)
capital of a b a n k of issue to 1,000,000 francs; (2) requirem e n t of a cash reserve of 50 per cent of t h e note circulation; (3) abolition of cantonal guaranties for t h e 50 per
cent not covered b y specie, this t o be covered exclusively
b y t h e bill portfolio or deposits of securities; (4) requirem e n t t h a t bills serving as cover for notes be k e p t separate
from other bills held b y t h e bank, and t h a t their face value
represent 120 per cent of t h e a m o u n t of circulation for
which they serve as security; (5) requirement t h a t only
securities t h a t are officially quoted be utilized as cover
for notes, and t h a t they m u s t be deposited a t a federal
office; (6) prohibition of t h e contracting of short-time
liabilities; (7) more stringent measures as regards t h e
redemption of notes; (8) increase of the federal banknote t a x to one-tenth of 1 per cent of t h e circulation and
oriiilwentieth of 1 per cent of t h e value of t h e cover in
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securities, and increase of the cantonal tax to i per cent
of the circulation not covered by metal.
This bill, however, never reached the stage of parliamentary consideration; the growth among the people,
and in the Bundesversammlung itself, of the sentiment
in favor of a central bank shoved it into the background.
The following resolution was carried on the suggestion
of Nationalrat Joos at the general Swiss Workmen's Meeting held at Olten in April, 1890: "The Swiss Workmen's
Assembly expresses the expectation that the Federal
Chambers in the coming June session will subject article
39 of the federal constitution to a revision with the object
of introducing a bank-note monopoly. Should this expectation not be fulfilled, the Swiss Labor Federation will
take it upon themselves to collect 50,000 signatures in
order to bring about the requisite amendment of the constitution by means of a popular movement." The Federal
Chambers, already influenced by the message of the Bundesrat, at the June session appointed each a special commission to study the bill that had been prepared by the
Bundesrat, but before these commissions had entered on
their work, at the autumn session of the Bundesversammlung, the Nationalrat by a heavy majority voted
urgency for a motion made by Keller, inviting the Bundesrat to submit a report and proposal on the revision of
article 39 of the federal constitution, with a view to a
monopolization of the issue of notes and the creation of a
central banking institution upon which the note monopoly
was to be conferred. The Bundesrat, which was only
waiting for the initiative of the Bundesversammlung, pre89

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sented as early as December 30, 1890, a report and proposal of the character contemplated in the motion; and
as in the meantime Joos had been actively engaged in
collecting signatures with the result that 82,000 Swiss
citizens demanded the alteration of article 39 of the Swiss
federal constitution so as to permit a monopoly and of a
federal bank, the Bundesrat prepared a new article 39
of the federal constitution, which authorized the note
monopoly and left to legislation the solution of the problem of its actual establishment. After lengthy parliamentary debates this proposal was laid before the people
and on October 18, 1891, the revised article 39 was adopted
as part of the federal constitution by 231,578 votes against
158,615, i. e., by a majority of 73,000 votes. The Cantons
of Fribourg, Grisons, Tessin, Vaud, Valais, Neuchatel,
and Geneva, and the two half Cantons Obwalden and
Appenzell Within, gave majorities against the amendment,
there being in these Cantons 87,367 votes against the proposal and only 33,140 in favor of its acceptance. In the
remaining Cantons the figures were 198,438 votes for and
71,248 votes against the proposal. The new article 39 of
the federal constitution is as follows:
"The Confederation shall have the exclusive right to
issue bank notes and other currency of a similar nature.
"The Confederation may exercise the exclusive right of
the issue of bank notes through a state bank under a
separate administration, or may transfer it to a central
joint-stock bank to be established, which shall be managed
with the cooperation and under the supervision of the
Confederation, the right of repurchase being reserved by
the latter.
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" T h e chief function of the b a n k possessing the banknote monopoly is to regulate the monetary circulation of
t h e country and t o facilitate its exchanges.
" T h e net profits of the bank, over and above fair interest or dividends upon t h e dotation or share capital and
the necessary transfers to surplus, shall belong to the
Cantons to the extent of a t least two-thirds.
The bank and its branch establishments shall not be
subjected to taxation on t h e p a r t of t h e Cantons.
" E x c e p t in case of necessity in time of war, t h e Confederation can not declare a legal obligation to accept
b a n k notes or any similar token money.
" T h e location of the bank, its basis and organization,
and in general all matters pertaining to the execution of
this article are to be determined b y federal legislation."
SECTION I I . — T H E BILLS OF 1894 AND 1899.

I n t h e message accompanying the revision bill the
Bundesrat declared t h a t although it could not escape the
conviction t h a t a thorough reform of the Swiss bank-note
system could not be accomplished b y means of a law
based on a system involving a multiplicity of banks, b u t
could be effected only by the centralization of t h e note
issue through t h e creation of a Swiss state b a n k exercising
a bank-note monopoly, yet it presented only a draft of a
revised bank-note act on the basis of the existing system,
* 'because we doubt whether more far-reaching, thoroughgoing reform propositions, which would have to be preceded b y a revision of article 39 of t h e federal constitution, would stand a chance of being accepted, and we
fear t h a t their rejection would result in a long postpone91

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(5) leading thoughts for the execution of article 39 of the
federal constitution, submitted to the finance department
by Bank-Note Inspector Schweizer; (6) proposal of the
Bank of Basle sent in on behalf of the group of pure
private banks; (7) opinion of the mixed banks, submitted
by the Cantonal Bank of Vaud; (8) organization project
of the group of cantonal banks; (9) proposal by Dr.
Konrad Escher; (10) proposal by former Nationalrat
J. J. Keller.
In these various contributions three points of view are
chiefly noticeable. A pure state bank was advocated by
the left wing of the Democratic party, represented by
Nationalrat Hirter, of Berne; by the socialistic group of
the Bundesversammlung, represented by Nationalrat
Curti; by the Gruetliverein; and by the Bauernverein.
The motives were of the most divergent nature. Some,
and, above all, the experts, who advocated a state bank,
were moved by legal and economic considerations; others
were influenced by a dislike of private capital and by
tendencies to state socialism; the great mass by dislike of
the stock exchange and of speculation; but it must not
be overlooked that vague hopes were also entertained of
low interest and easy credit. The idea of a private central bank was especially supported by the circles of high
finance and also, under the leadership of the Swiss Handelsund Industrieverein, by the business community. In politics this position was taken by the right wing of the
" Freisinnige " party, and, under the leadership of CramerFrey, by the liberal center and a portion of the liberal
conservatives, who were also influenced by aversion to an
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increase of federal power. Finally, in French Switzerland
a n d among the representatives of cantonal finance, t h e
old antagonists of a central b a n k made themselves heard
a n d demanded t h e establishment of a " b a n k of issue on a
federalistic basis.'' They proposed t h e erection of a " bank
of t h e confederation," which was t o make t h e notes a n d
distribute t h e m among t h e established banks of issue.
These were t o give u p their special designations and b e come branches of t h e central institution, b u t aside from
this they were to retain their independence a n d h a v e
their own management and administration. They were
t o act as a unit only in regard t o t h e obligation of note
redemption, a n d would have organs of common action in
an assembly of delegates and in a central office.
Very important for t h e progress of t h e question was
t h e change t h a t took place in 1891 in t h e conduct of t h e
Finance D e p a r t m e n t ; Nationalrat Hammer, who was a pronounced friend of t h e idea of a private bank endowed with
t h e bank-note monoply, was succeeded b y a democrat,
Nationalrat Hauser, who was formerly the head of t h e
Fiscal Department of the Canton of Zurich, a m a n of wide
professional knowledge and of great decision of character.
After he h a d carefully examined t h e various proposals a n d
projects he joined t h e group of supporters of a pure s t a t e
bank and as early as November 30, 1893, he submitted t o
t h e Nationalrat his proposals for t h e settlement of t h e
question " state b a n k or private b a n k ? " In his proposals
he pronounced himself in favor of a pure state bank, a n d
a t the same time he set forth in a series of theses t h e way
in which t h e plan should be carried out. These theses,
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which formed the basis upon which the bill was afterwards
drawn, were as follows: " Berne is regarded as the proper
site for the bank. The chief object of the bank is, by
means of a uniform and careful discount policy, to regulate
the monetary circulation of the country and to facilitate
its exchanges by developing the transfer and draft business.
The bank must also transact all the business of the Federal
Treasury free of charge. The sphere of activity of the
state bank shall, to this end, be restricted to that of a pure
note, transfer, and discount bank; such business as that of
lending in current account, mortgage transactions, savingsbank business, buying and selling of securities on account
of third parties, shall be reserved for the cantonal and
the private banks. The cantonal banks, which are all
subject to cantonal laws and responsible to the cantonal
authorities, and which transact such business as the state
bank is not at liberty to engage in, can not become branches
of the state bank. On the other hand the state bank will
enter into close relationship especially with cantonal banks
in regard to the rediscounting of bills, the advancing of
money on securities, and the check, transfer, draft, and
collection business. The state bank shall also be empowered to acquire, by mutual agreement, existing banks of
issue (either public or private) with their assets and liabilities, in so far as the absorption of them is compatible with
the functions of the state bank as above prescribed, and
these absorbed banks may be organized into branch offices.
Negotiations are to be entered upon for these purposes as
soon as the act goes into force. The transaction of all
treasury business without conpensation is not to be con95

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sidered as a mere transfer business, but must be regarded
as a duty of the state bank and must be treated as a separate branch of its business; the bank must undertake the
obligation of accepting and making payments for account
of the Confederation free of any charge, and must cash all
drafts of the state treasury at its main office and all branch
offices, though only up to the total amount standing to the
credit of the state treasury. The bank may also be obliged
to undertake the management of securities belonging to the
Confederation. Apart from the two-thirds share of the
net profits which the constitutional article secures to the
Cantons, the latter are also to be permitted to participate
in supplying the original capital of the bank. The administration of the bank shall, within the limits to be prescribed by law, be absolutely independent, and free from
all influence on the part of the political authorities,. But
the bank shall be, nevertheless, under the supervision and
control of the Bundesversammlung. After the lapse of a
reasonable period set down for the withdrawal of the old
notes, the state bank shall be obliged to redeem all the
remaining circulating notes, and on the other hand the
present banks of issue shall hand over to it the equivalent
of such notes either in cash or discount bills. The provision of the present bank act, that after the expiration of
thirty years the equivalent of such notes as have not been
presented for redemption shall be handed over to the
Swiss invalid fund, should also be incorporated in the new
law."
At the sitting of the Bundesrat of the 24th of January,
1894, Bundesrat Hauser succeeded in having the subject
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brought to a vote, and after 3 members voted against and
3 members for the theses of the Finance Department
the president of the Confederation (Col. Emil Frey)
threw his casting vote in favor of their acceptance, and
the Finance Department was asked to work out a draft
of a state bank law. The Finance Department submitted such a draft to the Bundesrat on May 24, 1894, a n d
it was discussed and accepted by the Bundesra at its
meeting of July 5, 1894, and laid by this body before the
Bundesversammlung, with a message, on October 23,
1894. The Nationalrat, which had the priority in this
matter, decided at the extraordinary spring session of
1895, after rejecting several motions to the contrary,
to consider the bill and message received from the
Bundesrat, and at the following summer session the
deliberations commenced. The chief alterations of the
bill made by the Nationalrat consisted of certain grants
to the Cantons and concerned their participation in
furnishing the bank's capital and in the election of the
bank council; the reduction of the rate of interest payable on the capital from 4 per cent to 3 X P e r cent,
and the increase of the share of the Cantons in the net
profits from two-thirds to three-fourths. In December,
1895, the project came before the Standerat, which assented
to most of the alterations made by the Nationalrat, but
pronounced in favor of the selection of all the members
of the bank council by the federal council and the assigning of the entire net profits to the Cantons. At the following extraordinary March and June sessions of 1896 a
compromise respecting the points on which they were at
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variance was agreed upon by the two chambers, and it
was decided to carry over 25 per cent, instead of only 15
per cent, of the net profit to the surplus and to hand
over the entire remaining profit to the Cantons. The
Cantons also received the privilege of a special representation in the bank council, consisting of ten delegates
to be chosen by an electoral college composed of one
delegate each for every Canton and half Canton. This
law was passed by the Nationalrat at its sitting of June
16, 1896, by 89 against 27 votes, 3 members not voting
and 26 members being absent, and in the Standerat it
was adopted on June 18, 1896, by 24 against 17 votes, 2
members not voting; and under date of June 18, 1896,
the law was published in the Bundesblatt on July 10,
1896, under the title of "Law concerning the establishment of the Swiss Federal Bank."
Immediately after the passing of this law the antagonists of a State Bank did all they could to put the referendum into operation, and naturally those who opposed
a central bank, whatever its form might be, supported
this agitation very heartily. In view of the heated
controversies that had raged for years on the bank question, it was not difficult to secure, within a short space
of time, more than twice the 30,000 signatures required.
Though in the month of October, 1896, 79,123 signatures
demanding the referendum had already been received at
the Federal Chancellery, the Bundesrat decided on
October 30 to fix the poll for the 28th of February of the
following year, during which long interval there was a
constant stream of speeches and canvassing tours in
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behalf of the law that had been challenged. In spite of
these endeavors the law was rejected by 255,984 votes
against 195,764, or, what gives a better idea still, by a
majority in 16 Cantons and half Cantons. Only the
Cantons of Zurich, Berne, Glarus, the two Cantons of
Basle, Schaffhausen, Appenzell without, Aargau, and
Thurgau voted in the affirmative. French Switzerland
voted solidly against the law; in Zurich, Berne, and
Aargau there were strong minorities.
The figures of this referendum vote may be interpreted
in different ways, according to one's own political
views, but one thing is certain—that the 200,000 Swiss
citizens who declared themselves in favor of a pure state
bank represent a more homogeneous mass than the 260,000
persons who voted against it. Among those that accepted
the law, three groups can be distinguished: The Left,
which as a matter of principle desires to assign to the Confederation certain duties; the convinced friends of the state
bank system; and, thirdly, those—and their number was
rather considerable—that simply voted " y e s " in order to
put an end to existing conditions, although they would have
preferred a private bank. Among the rejecters four groups
may be distinguished: First, there is the political opposition, which votes " n o " on principle at every referendum,
and the number of this class is estimated at some 150,000;
the second group of the rejecters, chiefly from French
Switzerland, feared that the creation of the federal bank
would mean an increase of federal power, and saw in the
unlimited liability of the Confederation a mixing up of the
credit of the Confederation with that of the bank; the third
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group was influenced by considerations of cantonal finance—
they feared that the revenues of the Cantons might diminish, owing to reduced profits on the part of the cantonal banks; the fourth group consisted chiefly of adherents of the Swiss Handels- und Industrieverein, who, as a
matter of principle, would only give their consent to the
establishment of a central bank of issue upon a private
basis.
Article 39 of the federal constitution continued, even
after this referendum vote, to require the creation of a
central bank of issue, and a number of facts pointed to the
conclusion that even the antagonists of the bill that had
been rejected, or at least a part of them, were, in spite of
the people's negative decision, alive to the necessity of
centralizing the issue of bank notes.
At the extraordinary March session of 1897 of the Bundesversammlung Assembly, which was held shortly after
the referendum vote, two motions were put forward in
the Nationalrat from precisely those quarters frona which
the severest attacks on the state-bank plan had come, and
both of these motions aimed at the establishment of a central bank of issue. The first of these motions, presented by
Gaudard and his supporters, read as follows: " The Bundesrat is invited to submit at a session in the near future a
report and bill concerning the establishment of a national
bank which shall have limited liability and a legal personality independent of the state, and whose capital shall
be provided by the Confederation, the Cantons, and possibly the cantonal banks. The national bank shall have
its seat at Berne. The act shall decide the mode of elect100

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ing the organs of the bank, which shall be under the management and supervision of the Confederation."
The
second motion, which was submitted by Nationalrat
Cramer-Frey, president of the Swiss Handels- und Industrieverein, was as follows: "The Bundesrat is invited to
submit, as speedily as possible, and with due regard to
the people's decision of February 28, 1897, a new bill concerning the execution of article 39 of the federal constitution."
The Swiss Handels- und Industrieverein, too, had already,
during the campaign against the state-bank law, set itself
the formal task of drafting a new bill on the basis of the
second alternative of article 39 (central joint-stock bank
with the cooperation of the Confederation in its supervision and administration), with a view to submitting it to
the Bundesrat without delay. In March, 1898, this bill
was presented to the Bundesrat after it had been approved,
on March 5, 1898, at a meeting of the delegates of the
Swiss Handels- und Industrieverein.
The bill of the Handels- und Industrieverein aimed at a
mixed bank; two-fifths of the bank's capital was to be
found by the Cantons, one-fifth by the existing banks of
issue, and two-fifths by private capitalists. The financial
participation of the Confederation was entirely left out of
the question, and this for the reason that the defeat of the
bank bill had been chiefly due to the fact that a large part
of the people disliked the idea of the Confederation undertaking financial liabilities and tying up the credit of the
Confederation with that of a bank establishment. Zurich
was contemplated as the chief seat of the bank; its business
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activity was limited to that of a pure transfer, note-issuing,
and discount bank; dividends were limited to a maximum
of 4 per cent, and the remaining profit was to be divided
among the Cantons. Apart from a general meeting, to
which, in the main, only matters of form were to be referred,
the bill provided for the creation of two administrative bodies for the bank. The first was to be the bank council, 25
members of which were to be elected by the general meeting, and 20 members, as well as the president, were to be
nominated by the Bundesrat. This bank council was to
have the duty of making the reports of business and the
yearly balance sheet, of preparing the matter that was to
be laid before the general meeting, and of deciding upon
all business transactions involving more than 5,000,000
francs. The second body was to be a bank committee, to
be appointed by the bank council, which was to manage the
affairs of the bank conjointly with the board of directors,
also to be appointed by the bank council.
At the same time another project was laid before the
Bundesrat—"Outlines for the establishment of a Swiss
federal bank. Proposal submitted by a group of members
of the Bundesversammlung, excluding the employment of
private capital." This scheme was worked out by the
friends of the rejected project of a pure state bank, namely
by Favon, Gaudard, Heller, Hirter, and Jordan-Martin,
all members of the Nationalrat. One-third of the capital
of this federal bank was to be supplied by the Cantons,
one-third by the existing banks of issue which are managed
with the cooperation of the cantonal authorities, and the
remaining one-third by the Confederation; the latter also
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to take such part of the shares as might not be subscribed for by the Cantons or cantonal banks. In the bank
council, to be composed of 60 members, the cantonal
banks were to have 5 representatives, the Cantons 25,
and the confederation 30.
J. J. Keller, former member of the Nationalrat, submitted a third plan to the effect that a federal bank, with
subsidiary guaranty on the part of the Confederation and
endowed with the bank-note monopoly, be established;
that its total note issue be limited to 250,000,000 francs,
of which sum 180,000,000 francs were to be left at the disposal of the existing cantonal banks free of interest, the
private banks of issue to lose their privilege of issuing
notes and to be declared agencies of the federal bank.
These three plans were laid before the commission of
experts appointed by the Federal Finance Department,
which held its sessions at Berne from July 9 to November
24,1898. Already in his opening speech, Bundesrat Hauser
declared his position, which was, in substance, that the
result of the popular vote of February 24, 1897, could not
be regarded as signifying that the only possibility still
open was that of a private joint-stock bank endowed with
the bank-note monopoly. "You will not take it amiss
if I say that I shall not recommend to the Bundesrat anything that I can not justify in my own eyes. The responsibility resting on my shoulders in this matter is far greater
than yours, and with legislation of this kind the name of
the head of the department remains more or less bound up
for all time. I am prepared to make concessions, but
the question remains of what nature they are." Chiefly
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influenced by the stand taken by Bundesrat Hauser, the
commission made a number of decisions concerning controverted points, which w^ere calculated to satisfy friends
of a state bank without altogether excluding private
capital from participation in the central bank to be
created. On the basis of these results the Finance Department worked out the preliminary draft of a federal law
concerning the erection of a central bank of issue, and after
this preliminary draft had been approved by a smaller
commission of experts the final draft of the bill was handed
over on March 24, 1899, to the parliamentary commissions
previously appointed.
The new draft sought to make concessions in both directions, though without concealing the preference of its
originator for a state bank. Of the 36,000,000 francs of
capital which was proposed, one-third was to be supplied
by the Confederation, one-third by the Cantons, and onethird by private capital; such part of the capital as had
not been taken up by the Cantons or been subscribed for
by the public was to fall to the Confederation. The u Swiss
Federal Bank" was to have separate legal existence as
a person. The business activity of the bank was restricted
in a manner similar to that proposed by the Swiss Handels- und Industrieverein. As cover for the notes, 40
per cent in specie was fixed, the remaining 60 per cent
to consist of bars, discount bills, and foreign drafts. Of
the net profits, 15 per cent, were to go to the surplus in
the first instance, until the surplus had reached the height
of 30 per cent of the original capital; then a dividend of 4
per cetnt was to be paid out and all the remainder was to
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be handed over to the Cantons. There was to be no
general meeting, and the supreme authority of the bank
was to be a general council consisting of 75 members; the
Confederation, the Cantons, and the private shareholders
appointing each one-third of this number, and the Bundesrat naming its president and vice-president. This general
council was given the rights usually exercised by a general meeting. The general council was to choose out
of its number 13 members to form, in conjunction with
the president and vice-president chosen by the Bundesrat,
a bank council of 15 members in all. The bank council
was to meet at least once every three months; to it was
assigned the duty of making the annual report, of preparing motions, etc., for the general council, and of
drafting regulations to be approved by the Bundesrat;
it was also to have the right of making nominations to
the directorate to be acted on by the Bundesrat. The
president and vice-president and 3 other members selected
from among the bank council were to constitute the bank
committee, which was to exercise supervision and control
of the management of the business, to give advice as to
the fixing of the bank rate, and to appoint the local committees. The directorate (Direktorium), the real executive
authority, was to be elected by the Bundesrat for a period
of six years, upon the nomination (not binding) of the bank
council; it was to consist of from 3 to 5 members and was
to operate conjointly with the bank committee. The
Bundesrat also claimed the right to nominate the local
managers; on the other hand, the audit commission was
to be appointed by the general council of the bank. The
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charter of the bank was to run for a period of twenty
years, and in the transitional dispositions two and a half
years' time was given to the existing banks of issue to call
in their notes. Berne was fixed upon as the seat of the
bank.
The special commission of the Nationalrat considered
this bill in the days of April 19-22, 1899; in the full
assembly of the Nationalrat Mr. Scherrer-Fuellemann
moved that the proposition of the Bundesrat be not
considered, and that the federal council be invited to
prepare a bill mainly on the basis of the law of June 18,
1896, but with limited liability on the part of the Confederation. Nationalrat Ador, of Geneva, on the other
hand, proposed entering immediately on the subject, but
not upon the bill of the federal council, but upon the one
submitted by the Swiss Handels- und Industrieverein.
Both motions were defeated, and the bill of the Bundesrat,
which was warmly recommended by Bundesrat Hauser,
was fully considered at the June session, and at the
final vote of June 13 it was adopted by 92 votes against
23; 30 members not voting.
The alterations which were made in the bill by the
Nationalrat were altogether of a secondary nature,, For
the expression "chief seat" the term "central seat" was
substituted in the bill, it being held that this expression
was more accurate and less prejudicial to the importance
of the various places; the central seat, i. e., the seat of the
central administration, might be legally established in
Berne, but such important commercial centers as Zurich,
Basle, Geneva, and St. Gall would naturally develop them106

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selves into "chief seats." Besides this, the Nationalrat
withdrew from the Bundesrat the right of appointing the
vice-president of the general council and conferred this
power upon the general council of the bank itself. Moreover, the duration of the charter was reduced to fifteen
years.
The commission of the Standerat had also met in due
course to discuss the bill, but recommended, at the beginning of the December session, 1899—after the Nationalrat
had passed the bill—that the subject be not takeu up at
that session. The members of the Standerat held that
the moment was not opportune for discussing the bill, in
view of the fact that the exchange rate on France was 50
points above the gold point, and this circumstance was
calculated to put their advocacy of the interests of the
cantonal banks, and of the banking policy of the Cantons,
in an unfavorable light.
Only at the December session of 1900 did the bill come
up for consideration in the Standerat, and it was passed
at the same session. In seven points the result arrived at
by the Standerat presented important variations from
the bill framed by the Bundesrat and from that passed by
the Nationalrat. In the interest of the private and cantonal banks the Standerat deprived the Federal Bank of
the right to accept deposits bearing interest (an exception
being made as to dealings with the Federal Administration) , and of the right to accept securities for safekeeping
and management; it increased the dividend to 4 X per
cent; it charged the bank committee with the appointment of officials and employees under the Direktorium at
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the head office, and it turned over the appointment of the
staff of the branch offices to the local bank committees;
it lengthened the initial period of the bank charter from
fifteen to twenty years, with a prolongation period of ten
years; it gave three years' time instead of two and a half
for the drawing in of the notes hitherto in circulation, and
accordingly altered the quarterly quota from one-tenth
to one-twelfth of the issue; moreover, the bank was to
assist the existing banks of issue in the drawing in of their
notes as much as possible, by granting advances on
securities. Finally, the expression "central seat" was
again replaced by "chief seat," and it was transferred
from Berne to Zurich, in return for which the city of
Zurich was to be obliged to provide a suitable site for the
bank's building or to make an equivalent payment in
money.
In May, 1901, the alterations made by the Standerat
were discussed by the Nationalrat, and at the June session
of the same year the existing differences were to be adjusted. The negotiations respecting a settlement were
begun in the Nationalrat. This body adhered to its conclusions regarding the term "central seat," the location of
the central office at Berne, the acceptance of securities for
safeke€rping and management, and the dividend of 4 per
cent; it assented, however, to the Standerat's provision
forbidding the acceptance of interest-bearing deposits except from the Federal authorities. At the further deliberations the Standerat gave way regarding the term " central seat," but it adhered to a dividend of 4 K per cent,
to the prohibition to accept securities for safekeeping and
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management, and to the transfer of the central seat to
Zurich. Then, after the Nationalrat had declared that its
decision respecting these three points was final, the
Standerat yielded to the Nationalrat regarding the first
two points, but, with full knowledge that it meant the
destruction of the bill, decided once more in favor of
Zurich as central seat. The president of the Standerat
thereupon declared, with a sarcastic smile: "You have
thus decided in favor of Zurich as the seat of the bank.
As the Nationalrat has declared that it stands definitively
by its decision, the bill has failed to become a law." a
a
I t would thus appear as though the bank bill was defeated solely
because of the rivalry of the two cities, Berne and Zurich; but on looking
more closely into the figures of the various votes taken, it will be noticed
that this rivalry was merely utilized as an instrument by other interests:

Votes given forDate of vote.

Dec.
June
June
June
June

7 1900 (Standerat)
18, 1901 (Nationalrat)
26, 1901 (Standerat)-.
27, 1901 (Nationalrat)
28, 1901 (Standerat)-.

At the vote of the Nationalrat of June 18, Berne received 69 votes, at that
of June 27, 81 votes. What accounts for this increase? The advocates of
the financial interests of the Cantons, who were strongly represented in the
Nationalrat, who controlled a. majority in the Standerat, and who were
more or less enemies of the scheme of a central bank and thus desired
the defeat of the bill, voted in the Standerat on June 26 unitedly for Zurich,
in the Nationalrat the day following unitedly for Berne, and again for
Zurich the day following in the Standerat. As they, moreover, voted in
the Nationalrat that the decisions be declared final, and as a majority for
Berne in the Standerat was out of the question, the end was gained and
the bill defeated without the Standerat being obliged to withhold its assent
to the Nationalrat's action in questions of a purely objective nature, which
would certainly have created a bad impression.
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T h e defeat of the bill was variously interpreted within
the circles of t h e Bundesversammlung itself. Some explained t h e conduct of the S t a n d e r a t as the result of a
strong dislike to t h e scheme of a central b a n k on t h e p a r t
of t h e majority of its members; others saw an explanation in merely tactical considerations and maintained t h a t
the law, against which the referendum would surety have
been invoked, would have h a d no chance whatever of
being accepted b y the people—that French Switzerland
and the left wing, already prejudiced against the bill b y
t h e concessions granted to private capital, would have
united with the representatives of the financial interests
of the cantons in the most vehement opposition to the
law; it was consequently held t h a t the Standerat h a d
seized the opportunity of taking t h e existing differences
between t h e two chambers as a pretext, thereby bringing
a b o u t the failure of the bill instead of having it rejected
b y the referendum, thus saving the countrv from a second
embittered and unedifying struggle.
SECTION III.—THE MOTIONS OF VON ARX AND SCHERRERFUELLEMANN—THE FISCAL DIFFICULTY.
Owing to the failure of the bill submitted b y t h e Federal
Council March 24, 1899, t h e struggle for the central b a n k
h a d arrived at a dead point.

A t t e m p t s were m a d e t o

carry into effect t h e two alternatives set down in t h e new
article 39 of t h e federal constitution, one after t h e other,
b u t no progress whatever was m a d e in t h e matter.

t h e year 1901 it was still in t h e same state as immediately
after t h e revision of t h e constitution in the year 1891.
The exclusive right of issuing b a n k notes, which accordno

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ing to t h e constitution belonged solely to t h e Confederation, was still exercised, as before, b y t h e 36 existing
cantonal and private institutions; and t h e abnormal situation was presented t h a t t h e requirements of t h e federal
constitution and t h e actual organization of t h e noteb a n k system were in direct contradiction with each other.
After t h e second a t t e m p t to enact a bank law had been
frustrated b y t h e resistance of t h e Standerat, a certain
spirit of despondency was noticeable all along t h e line;
in m a n y quarters the question was asked, whether it was
possible at all to find a plan which would satisfy all t h e
opposing interests. Among t h e opponents of t h e central
bank scheme it was asserted t h a t t h e failure of t h e bill
did not necessarily mean t h e abandonment of all hope of
attaining t h e objects in view; t h e shortcomings of t h e
banking system, which doubtless existed, could be removed and a number of improvements could be carried
through, if t h e legislative authorities would only p u t t h e
creation of a central b a n k on one side for a m o m e n t a n d
would t a k e in hand instead t h e revision of t h e b a n k law
of t h e year 1881. I t might be possible, argued t h e s u p porters of these views, by improving and establishing b y
law t h e organization which had been created b y t h e
concordat of the banks of issue, b y developing t h e relationships already existing, b y founding and enlarging
central clearing offices, etc., to p u t t h e decentralized
Swiss note-bank system into a position to fulfill t h e functions which it was usually assumed could be fulfilled only
by a central bank of issue. This view found parliament a r y expression in a motion presented b y Von Arx a n d
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others to the Standerat on December 17, 1901, and at the
sitting of the Standerat of April 18, 1902, this motion was
declared important and was referred to the Bundesrat.
The motion of Von Arx was as follows: "The revised
article 39 of the federal constitution aims at the establishment of a federal bank endowed with the bank-note
monopoly. All the efforts that have so far been made to
carry out this requirement have been frustrated either on
account of the people's resistance or owing to the fact
that the authorities failed to agree. Whether an adjustment of existing differences will be possible in the near
future is more than doubtful at the moment. On the
other hand, our note-bank system presents evils which
urgently demand correction and the removal of which
should not be postponed for a number of years. The
undersigned, therefore, invite the Bundesrat to examine
and report to the Bundesversammlung whether the law
of March 8, 1881, respecting the issue and redemption of
bank notes should not be subjected to a revision, and, in
case of an affirmative conclusion, to submit a bill referring thereto. Irrespective of the revision of the banknote law, the carrying out of the revised article 39 of the
federal constitution should be further prosecuted."
As the essential points to be taken into consideration
in the event of such a revision, the Standerat at its meeting
of the 18th of April, 1902, designated the following, at the
instance of Standerat von Arx: (1) Limitation of the
note issue, either by the Bundesrat or the Bundesversammlung; (2) establishment of the percentage to be assigned
to the various cantons in the total issue on the basis of
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their note issue in the past, their population, and their
economic importance; (3) the conferring on the Bundesrat
of the power to restrict, in case of need, the total issue of
notes and to require the various banks of issue to reduce
their circulation proportionally; (4) covering of the entire
note circulation by cash and bills; (5) obligation on the
part of the banks to recognize and respect the decisions
of the discount committee; (6) establishment of a central
clearing house as an official institution; (7) taxation of
the banks of issue according to the extent of their actual
note circulation and not, as hitherto, on the authorized
issue; (8) creation of a uniform Swiss bank note, for the
redemption of which the existing banks of issue would be
conjointly responsible.
It was hardly necessary to waste a word as to the usefulness of the reforms here proposed; there could be no
doubt that if it had been possible to realize them the worst
evils of the Swiss banking organization would have disappeared. That the introduction of an amended form of
the bank act of 1881 would not, however, have overcome
all these evils, and, above all, that the 36 banks would not
have been in a position to fulfill the functions of a central
bank as a regulator of the currency, was indicated in the
motion of Von Arx itself, in which the revision of the existing bank act was regarded as merely a preliminary to the
creation of a central bank of issue.
The motion of Von Arx was, however, beset with such a
number of difficulties—constitutional, economic, and political—that it seemed from the first almost out of the question that the Bundesrat and the Nationalrat would take
action in pursuance of it.
83700—10

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Article 39 of t h e federal constitution of the year 1874
granted to t h e Confederation the power to establish b y
law regulations respecting the issue and redemption of
b a n k notes; this article w^as rescinded through the revision
of the constitution in 1891. Since October 18, 1891, t h e
Swiss constitution transfers the monopoly of the issue of
b a n k notes to t h e Confederation, and leaves it to legislation to decide on the manner of exercising this monopoly,
b u t the article does not contain any provisions t h a t could
serve as a constitutional basis for a b a n k law based on t h e
system of multiplicity of banks. The opinion was expressed on the occasion of the debate upon the motion of
Von Arx in t h e Standerat t h a t t h e old article 39 of t h e
federal constitution remained in force until such time as t h e
new article had actually been carried into effect; b u t this
view is entirely at variance with the phrasing of the new
article, which says: "Article 39 of t h e federal constitution
is rescinded and in its stead t h e following article has been
passed." The view was also expressed in the Standerat
t h a t the new article 39 of the federal constitution really
signified an extension of the powers vested in t h e Confederation, and it therefore implicitly included eo ipso t h e
former competences of the Confederation; b u t this statement was met with the justified retort t h a t the new article
39 was not an extension of the old one; on the contrary, t h e
two articles had nothing in common. I t was out of t h e
question t h a t the Bundesrat or the Nationalrat would
consent to a flagrant violation of t h e constitution, which
a revision of the bank law on the strength of a rescinded
constitutional article would have been. A revision of t h e
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b a n k law would have required as a preliminary a new alteration of article 39 of t h e federal constitution, and neither
in t h e Federal Chambers nor among t h e people could a
majority have been secured for such a step.
Two other and weighty classes of considerations were in
opposition to a revision of the law.
I n the first place, there were considerations of a political
n a t u r e ; it is quite clear t h a t such a revision, if it was
really m e a n t to bring about healthier conditions, would
necessarily have had to be very thorough, as was even
acknowledged b y the supporters of t h e idea of revising t h e
law of the year 1881. A restriction of the business activity
of the banks, an increase in the metallic cover for the notes,
and an alteration of the composition of the investments in
favor of the less profitable short-time investments would
essentially have been foregone conclusions, and would have
resulted in a decrease of t h e profits of these banks. This
would have roused t h e opposition of the representatives of
the fiscal interests of the cantons, who would have objected t o such a revision of the law, just as they objected
to the plan of a central bank. Not without reason it was
pointed out t h a t the eventual advantages of a revision
of t h e law would not be important enough to form a recompense for t h e expenditure of the political force necessary
to overcome this opposition.
Finally, considerations of tactics and of principle spoke
against a revision of the law. Even though t h e hope was
expressed in t h e motion of Von Arx, t h a t a revision of t h e
b a n k act of 1881 might be h a d without prejudice t o t h e
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tion, such a revision would in fact have resulted in pushing
the idea of erecting a central bank of issue into the background, if not entirely frustrating the object. An artificial prolongation of the situation that had been created
under the influence of the law of 1881 was, however, in
accordance neither with the economic interest of Switzerland nor with the result of the popular vote of October
18, 1891. A prominent supporter of the views embodied
in the motion of Von Arx, who as early as 1879 prefixed to
a paper on the Swiss bank-note question the motto, "The
best policy of a country is to continue as far as possible in
its existing arrangements," declared again in 1902 that the
best way to accomplish an object is " t o build on what
exists, on what has proved serviceable;" but in reply to
this nothing need be said but that in this case what exists
has proved most unserviceable, that the conditions at the
close of the nineteenth century showed very unhealthy
signs, and that to build on what exists would, consequently, have meant to erect the new building on a rotten
foundation.
A realization of the purposes embodied in the motion of
Von Arx would have encountered difficulties hardly less
pronounced than those with which the idea of the establishment of a central bank had to contend. That this
idea, however, in spite of all difficulties, did not for a
moment lose its hold, even after the second bill for a central
bank had been killed, is proved by the reply which was
made to the majority of the Standerat by some members
of the Nationalrat after the second bank bill had been
defeated.
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After the president of the Standerat had declared, on
June 28, 1901, that the bank bill had not passed, the following motion (by Scherrer-Fuellemann) was put by several members of the governmental left and of the socialistic group in the Nationalrat:
"The Bundesrat is invited to submit to the Federal
Chambers, as soon as convenient, a new bill in execution of
article 39 of the federal constitution, based essentially on
the federal law rejected on June 18, 1896 (pure State Bank)
and giving all possible consideration to the interests of the
cantonal banks."
In the March session of 1903 the motion of ScherrerFuellemann came up for consideration in the Federal
Chambers; in the Nationalrat Scherrer-Fuellemann spoke
in support of the motion from the historical and legal point
of view, and Hirter from that of economics and of banking
principles. The positive demand made in the motion
upon the Bundesrat to construct the new bill on the basis
of the defeated state bank bill of the year 1896 was
objected to by Ador, of Geneva. He recognized the necessity of centralizing the note-bank system, but he desired to
have a bill drawn on the basis of the second alternative
contained in the federal constitution, the creation of a
private bank managed with the cooperation and under the
control of the Confederation. Against this demand in the
motion of Scherrer-Fuellemann, Bundesrat Comtesse also
protested, expressing the opinion that it would offend
democratic sentiment to submit again a bill drawn upon
the basis of the law that had been rejected by the people.
Moreover, he said it would be possible to safeguard the
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general interests without sticking to the form of a state
bank, not the manner of providing the capital but the
form of the bank management being of decisive significance.
In all this there was to be perceived a note of conciliation and of willingness to make concessions. The supporters of the state-bank scheme, Scherrer-Fuellemann
and Hirter, were willing to relieve the Confederation of
responsibility as regards the shares, to leave part of the
capital to the cantonal banks and if necessary to all the
banks of issue, and to take the interests of the cantonal
banks into consideration by appropriate limitation of the
sphere of activity of the federal bank. On the other hand,
the spokesman of the idea of a private joint-stock bank
declared that his political friends would agree to the
federal authorities being given large powers (election of
the president and direktorium by the Bundesrat placing
the bank under a far-reaching control through a federal
control office, etc.). On all sides the necessity of adequate consideration of the fiscal interests of the cantons
was fully acknowledged.
In accordance with this state of feeling, the ScherrerFuellemann motion was accepted in a weakened form.
The Bundesrat was invited " t o submit to the Federal
Chambers, as soon as possible, a new bill in execution of
article 39 of the federal constitution (bank-note monopoly).' ' In this wording the motion was also approved
by the Standerat, and that of Von Arx was thereby quietly
shelved.

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The task of drafting a new bill, which was thus devolved
upon the Bundesrat and with which the Finance Department was entrusted, was not only extremely difficult
from a technical point of view, but it was also of farreaching political importance. It was not merely a
question of constructing a new bill, but of constructing the
last bill. There was no doubt whatever in the Bundesrat
that after the first state-bank law had been rejected by
the people and a second bill had failed in the Bundesversammlung the one about to be worked out in execution of the Scherrer-Fuellemann motion would have to be
the last; there was no doubt that if this bill should fail to
become a law the idea of centralizing the note-bank system in Switzerland would have to be dropped for years
to come, if not for decades, and the supporters of the
views expressed in the motion of Von Arx would gain the
upper hand. And in connection with this the conviction
was felt that such a negative issue of years of labor would
have a detrimental effect upon Swiss economic life. For
these reasons, together with a recognition of the fact that
the efficiency and usefulness of a central banking institution does not depend upon its outer forms, but upon its
internal arrangements and organization, persons in influential positions were prepared to forego all party preferences
and to be satisfied with any type of soundly organized
central bank which would be able to perform the functions
of a central bank of issue and to unite in its favor at least
a majority of the opposing interests and opinions involved.

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If we now look at t h e grouping of t h e various elements
on which the acceptance of any new measure depended
in t h e first instance, and which would play a decisive p a r t
in t h e event of a popular vote, we find t h a t the situation
h a d changed entirely, as compared with t h e grouping in
connection with t h e popular vote of February 24, 1897.
Looking first at t h e group of t h e " u n c o n d i t i o n a l "
opposition, it is evident t h a t they could not be won over
for t h e cause. H e who votes " n o " at every referendum
on a federal law, on principle as a m a t t e r of political opposition, will of course do so in the case of a federal b a n k
law, and with this kind of opposition it has always been,
and will always be, necessary to reckon.
The opposition which Herr Hauser designated at t h e
time as being led b y t h e Swiss Handels und Industrieverein
was no longer as strong as it h a d been a t t h e time of t h e
popular vote on t h e first b a n k law in 1897, for in these
circles t h e conviction had been gaining ground t h a t the
creation of a central b a n k of issue was an economic
necessity and t h a t a central bank, even with the participation of the state, would be preferable to the existing
system of decentralization. Moreover, these persons
might be conciliated in great measure by the admission
of private capital. The probability had to be reckoned
with, however, t h a t even if a mixed basis were adopted
in the bill a certain a m o u n t of opposition from these
quarters would m a k e itself felt. The fact t h a t the concordat of the Swiss banks of issue joined t h e Swiss Handelsu n d Industrieverein goes to prove t h a t it hoped t o find
friends and defenders there.
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A more optimistic view was justified as regards those
groups of the opposition whose attitude in 1897 was a
manifestation of the fear t h a t t h e establishment of a central bank of issue might result in a strengthening of the
federal power. This fear, however, has been gradually
dying out during the last few years. I t has happened on
more t h a n one occasion in Switzerland t h a t the demands of
economic life and the peculiarities of old habits—the largescale methods of modern life and the traditional smallscale methods of t h e state, modern business and ancient
customs—have for a time measured forces against each
other, and t h a t business has proved itself the stronger of the
two. Centralized economic life requires centralized laws
and centralized institutions. I t m a y be said t h a t as t h e
urgent necessity of a reform became more and more
generally recognized the opposition of the anticentralization groups became correspondingly feeble.
This change of sentiment, however, is not due solely to
t h e pressure exerted b y economic needs. I t is also largely
due to a general change in the internal political situation
of Switzerland. U p to a comparatively recent time, say
fifteen years ago, there existed, even in rather broadminded circles, the idea t h a t the Swiss Canton was an
institution doomed to ossification and t h a t anything new
and live could be looked for only from the Confederation.
To this view corresponded, naturally enough, on the other
side an intensified feeling of the need of self-defense, and
consequently a dread of any strengthening of t h e federal
power. B u t this position of affairs has vastly changed

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during t h e last fifteen years. I t is becoming more and
more generally recognized t h a t a number of improvements
appertaining t o t h e civilization a n d social life of a modern
state can be achieved much more rapidly on a cantonal
basis t h a n b y way of federal legislation; and there is a
corresponding diminution of t h e former sensitiveness of
t h e Cantons, and of their fears of a strengthening of t h e
federal power. While in t h e neighborhood of t h e year
1890, at the time of t h e revision of article 39 of t h e federal
constitution, t h e opposition used t h e fear of increasing t h e
power of the Confederation as one of its chief arguments,
this fear plays only an unimportant role nowadays., I t is
a significant m a r k of t h e change which had taken place,
t h a t a man of t h e political character of Regierungsrat
Schmid, of Lucerne, in 1903, in a statement of his position
on the question of a central b a n k of issue, could use t h e
following words: " I am really a pronounced federalist,
i. e., I could never agree to t h e Cantons being swallowed
u p b y t h e Confederation; b u t everything t h a t the Cantons
can not control should go over t o t h e Confederation, and
also everything which is of such a nature as to require
unified management in order t o secure t h e greatest benefit
t o all, This is eminently true of t h e bank-note system,
which should be nationalized by the Confederation."
While t h e two last-named opposition groups had t h u s lost
in importance since t h e year 1897, and while the new bill
could count upon a greater number of supporters among
those who did not consider t h e question in any political
light, b u t from an economic standpoint, and who would
prefer any central b a n k t o a multiplicity of banks—while
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the prospect of a central bank had improved in these ways,
there arose on the other hand an obstacle which had to be
overcome at all costs. The number of those voters whose
attitude is determined by the fiscal interests of the Cantons
and who accordingly view the question of the establishment of a central bank of issue from this standpoint, had
very materially increased since 1897; indeed to such an
extent that, conjointly with the votes sure to be cast against
any bank bill whatsoever, they were in a position to defeat
any bill that did not give consideration to the contonal
finances.
The financial position of the Cantons had become considerably worse since the year 1897. While in 1885 the
administrative expenses were only 66,000,000 francs, they
increased to 84,000,000 in 1891, and to 113,000,000 in 1898,
and in 1901 they were just double the amount for 1885;
in the same lapse of time the population had only increased
by about 15 per cent. By far the greatest part of the
increase of taxation is composed of new direct taxes,
including increased inheritance taxes and a continual
advance in municipal taxes. More than half of the Cantons have enacted new tax laws since 1885, and in several
Cantons tax reform is being agitated. Though there can
be no doubt that taxable capacity has grown much more
rapidly than population, the results of the cantonal polls
during the last few years show plainly that this increase
of taxable capacity had been anticipated by the new tax
laws. In many Cantons the taxation screw has been put
on to the limit of effectiveness; there any further increase
of taxation does not yield increased revenues, but only
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leads t o evasion of taxes or, in some instances, t o emigration of capital. Even in the Cantons in which taxation
has not been carried to extreme heights, the people are
restive as to taxation and hostile to reform. In Soleure,
Berne, Lucerne, and Argovie the new t a x laws have been
rejected by the people, while on t h e other hand t h e cantonal revenues hitherto received no longer suffice to satisfy
t h e heavy demands made on t h e Cantons for educational
and social objects. While t h e figures for 1896 still showed
a surplus of revenue amounting t o about 1,000,000 francs,
t h e accounts of 1898 closed with a deficit of about 74,000
francs and those of 1899 with a deficit of 2,300,315 francs.
Since then a little improvement has shown itself. The
accounts of t h e Cantons showed a deficit of 2,300,000
francs in 1902, and of 2,200,000 in 1903. In 1904 it
fell to 346,478 francs; b u t no very great importance is
to be attached to this improvement, because in t h e cantonal budget for 1905 a deficit of over 6,500,000 is anticipated, and though budget figures of deficits must be taken
with great reserve, they nevertheless have significance as
symptoms, and justify the conclusion t h a t the equilibrium
of the cantonal finances is by no means assured.
In view of such a situation it could not (and can not)
be expected of t h e Cantons t h a t they would give u p t h e
revenue, small though it be, which they drew from t h e
cantonal bank-note taxes and from t h e net profits of
t h e cantonal banks. In drafting a new bill for a central
b a n k it was necessary t o take account of this fact, of t h e
influential representation of t h e cantonal interests in
t h e Bundesversammlung, and finally of t h e fact t h a t t h e
124

The

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Banking

Law

cantonal taxpayer is also a federal voter. In order to
insure the passing of the bill it was essential to give guaranties that the cantonal treasuries would benefit in some
way or other, and would thus be compensated for the
loss of the bank-note business.
SECTION IV.—THE FINANCIAL INTEREST OF THE CANTONS
IN THE REVENUES DERIVED FROM THE ISSUE OF BANK
NOTES.

The considerations set forth at the close of the foregoing section were, in point of fact, taken to heart by
the Bundesrat and by the Federal Finance Department,
which was entrusted with the drafting of the new bill; the
requirement of a direct compensation to the Cantons for
the reduction of revenue which threatened them as a consequence of the establishment of a central bank, which
had been brought forward in previous considerations of
banking laws, was now recognized in official quarters*
The difficulty that now arose was that of ascertaining the
amount which would be lost to the cantonal treasuries
and which would have to be made good; in other words,
of determining the financial value of the privilege of issuing notes—the revenue derived by the Cantons from the
banks of issue.
This amount is composed of the following three items:
(i) Net profits made and handed over to the cantonal
treasuries by the 19 pure state banks and the share of
profits from the 3 mixed banks; (2) amount of the cantonal bank-note tax; (3) amount of the cantonal deposit
fees from the 10 banks whose notes are covered by
deposit of securities.
125

National

Monetary

Commission

The two last-named sources would naturally cease to
exist with the discontinuance of the bank-note privilege.
In computing the financial interest of the Cantons in the
proceeds of the bank-note issues the totals of these two
items had to be allowed for.
With the net profits derived by the cantonal treasuries
from the pure and mixed state banks it was different;
those profits could not be considered as being entirely
jeopardized. It is clear—and the fact had, moreover,
been amply shown by the experience of the Banks of
Zurich and Geneva, which establishments had within
a few years voluntarily renounced the right of issuing
notes—that the cantonal banks, which, as a result of public guaranty and supervision, enjoy the highest and most
general confidence of the people, will remain strong and
prosperous even after the withdrawal of the right of issue.
One may even go so far as to say that only when freed
from the fetters and limitations of the bank law will these
banks find it possible to give their attention to more
profitable business, from which they have hitherto been
debarred. It was out of the question, therefore, to regard
all the net profits that were paid by the state and mixed
banks to the cantonal treasuries as jeopardized; only such
part, of the net profits as arose from the bank-note business had to be considered as lost to the Cantons.
The calculation of this specific profit resulting from the
issue of notes was, however, a very difficult matter. This
is proved by the fact that nearly all those who have undertaken to make such calculations have arrived at different
results., In the year 1879, o n the occasion of an appeal
made by the Bank of St. Gall, the net proceeds of the issue
of notes were estimated at from 49 to 145 centimes per
126

The

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Banking

Law

annum for every ioo francs of issue; the late Bank-note
Inspector Schweizer estimated then, ten years later, by
two methods, at 36 and 55 centimes, respectively; Banknote Inspector Sandoz set them down in 1893 at 49 centimes per annum for every 100 francs of the issue; the
Banque du Commerce, in Geneva, which had given up its
right of issue, declared the net proceeds to be " nothing,
or more probably less than nothing;" in the year 1903, at
the request of the author of this work, Herr Regierungsrat
Schmid, of Lucerne, calculated the profit of the cantonal
bank of Lucerne at 90.54 centimes, while Herr Regierungsrat Glaser, of Liestal, and Herr Direktor Peyer, of
Lucerne, made it 33.33 centimes for every 100 francs of
the bank-note issue. The author himself calculated this
profit once in the year 1902 and twice in 1903, each time
by a different method, and arrived at considerably higher
results, more like those of Herr Regierungsrat Schmid,
namely, a net profit of about 1 per cent per annum on the
amount of the issue.
The reason for these differences is, however, easily
found. The financial basis and the facilities for earning profits for the various banks of issue differ so much
from Canton to Canton that it is practically impossible
to find a uniform method for calculating the profits
derived from the note issues by all the Cantons or by all
the banks. It is hardly possible to bridge over by any
system of calculation the very marked differences existing among the thirty-six banks, some of which have the
character of mortgage banks, others of commercial banks,
some a restricted and steady line of business, others
presenting all the characteristics of a bank belonging to
an active center of trade and speculation.
127

Nat

i on a I

Monetary

Co m

mission

In spite of these difficulties it was essential, however,
if the leading features of the law were not to be left in
the air, to endeavor to fix in figures the loss which the
Cantons would have to bear, and which was to be made
good to them. The determination of these figures was
undertaken by the Federal Finance Department, and
the result served as the basis of the settlement to be
incorporated in the law. The figures for the year 1902
were taken for this purpose, because 1902 was the last
of the years showing temporary withdrawals, the years
in which none of those speculative moves had yet been
made—increase of note issues, introduction or increase
of note taxes, etc.—which were afterwards made by
banks or Cantons with a view to the prospective establishment of a central bank. The figures which were
taken as the basis of the calculations are reproduced
below (see table facing p. 129); and on this basis the
Federal Finance Department calculated the profits which
accrued from the issue of notes by the cantonal and mixed
banks, as follows:
Francs.

60 per cent of the note circulation

75, 114, 285
Francs.

Amount of liabilities falling due within eight
days
250, 978, 707
Deduct the assets which become available
within eight days
78, 003, 863
Net liabilities due within eight days
Amount of such liabilities falling due daily
Total of demand liabilities

172, 974, 844
21,621, 855
96, 736, 140

Available cash
Other cash holdings
Notes of other banks

17, 583,038
1, 257, 357
7, 450, 689

Total cover, not including the 40 per cent cash required by law
26, 291,084
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The

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Law

If we now distribute this sum of 26,291,084 francs
over the 60 per cent of the note issue not covered by
specie (75,114,285 francs) and the liabilities falling due
in one day (21,621,855 francs), amounting in all to
96,736,140 francs, in proportion to the amounts of those
two items of daily-maturing debt, by the formula:
96,736,140 : 26,291,084=75,114,285 : x, we find, on the
supposition of an authorized issue of 129,000,000 francs
and an actual circulation of 125,190,475 francs, that the
specific note cover exceeds the legally required cash reserve of 40 per cent by 20,414,665.85 francs, or amounts
in all, inclusive of that reserve, to 70,490,885.85 francs.
If we now deduct the last-named sum from the actual
note circulation, amounting to 125,190,475 francs, we
obtain for the cantonal and mixed banks (one-half of
each item being taken in the latter case) in all an uncovered note circulation amounting to 54,699,619.15 francs.
On this sum, which alone enters into consideration as
productive capital, the gross profit had to be reckoned.
The Federal Finance Department proceeded in the following manner:
In order that this sum may always be applicable to the
redemption of the notes it is necessary to have it invested
in easily realizable assets, and accordingly practically the
only investments that are to be considered are those in
good discount paper.
The gross profit accruing from these investments is,
consequently, to be reckoned on the basis of the discount
rates that prevailed. For the year 1902 the average of
the official discount rate was 3.77 per cent, and that of
the private rate 2.93 per cent. In view of the discount
conditions prevailing in Switzerland—under which regu83700—10

129

Condition of the pure cantonal and mixed banks for the year 1002.

PURE CANTONAL BANKS.

Cantonal Bank of St. Gall..__
Cantonal Bank of Basle-country _
Cantonal Bank of Bern
Cantonal Bank of Thurgovia
Cantonal Bank of Grisons
Cantonal Bank of Lucerne
Cantonal Bank of Appenzell Without
Cantonal Bank of Zurich
Savings Bank of Canton of Uri
Cantonal Savings and Loan Bank of Nidwalden _
Cantonal Bank of NeuchatelCantonal Bank of Schaffhausen
Cantonal Bank of Glaris_
Cantonal Bank of Soleure __
Cantonal Bank of Obwalden
Cantonal Bank of Schwyz
State Bank of Freyburg
Cantonal Bank of Basle-city
Cantonal Bank of Appenzell Within

Legal cover,
40 per cent

Authorized
issue.

Actual circulation.

Francs.

14,000, 0 0 0
2,000, 0 0 0
20,000, 0 0 0
5,000, 0 0 0
4,000, 0 0 0
6,ooo, 0 0 0

1. 0 0 0 ,0 0 0

13.837, 400
1,975. 500
18,928, 800
4,929, 950
3,959, 750
5,823, 550
2,977, 900
28,375, 300
1,446, 800
977, 150
7,939. 500
150
2,429,
400
2,474,
55o
4.953,
650
970,
500
2,947,
300
4,973,
000
9,827,
987, 750

790,200
7,571,520
1,971,980
1,583,900
2 , 3 2 9 , 420
1,191,160
n , 3 5 o , 120
578,720
390,860
3, 175,800
971,660
989,760
1,981,420
388,260
i,179,000
1,989,320
3, 9 3 0 , 8 0 0
395,100

124, 5 0 0 , 000

120, 734. 900

3,ooo,000
I,500,000

2,979,»5o

3,000, 000
30,ooo, 000
1,500, 0 0 0
1,000, 0 0 0
8, 0 0 0 ,0 0 0
2,500, 0 0 0
2,500, 0 0 0
5.000, 0 0 0
1,000, 0 0 0
3,000, 000
5,000, 0 0 0
10,000, 000

Francs.
5,534,96o

Available
cash.

Other cash
assets.

Francs.

1,765,170

131,121

148,630

3 7, 125

14,695
i65,973
168,073
30,332
59. 104
37, 616
366,405
9, 122
5,253
24,658
13,592
41,985
63,020
12,995
19.155
3 8 , 700
42, 872
3,629

48,293,960

17, 1 2 5 , 4 6 5

1 . 4 7 5 . 725

1.191,940
590,290

335,490
122,083

7.355

125, 1 9 0 , 4 7 5

50,076,190

5,280,500
810,905
i94,5io
964,450
242,915
5, 1 6 2 , 8 3 5
112,745
9L930
146,240
277,600
191,860
488,925
79,465
234,630
i7i,54o
723,490

Notes of
other banks.

Francs.
395.417
94,119

,484,305
396,859
385,998
74o,559
286, 321
989,775
89,879
35,839
600,579
383,474
121,653
462,188

Liabilities
Sixty per cent •
maturing
of the circula- |
tion.
J within 8 days. 0

Francs.
8,302,440
1,185,300
1 1 , 3 5 7 , 280
2,957,97o
2,375,850
3 , 4 9 4 , 130
1,786,740
17,025,180
868,080
586,290
4. 763,700
i. 457,490
1,484,640
2, 972, 130

55,799
150,450
650,103

582,390
i,768,500
2,983,980
5,896,200

34,150

502,650

1,248,300

7,390,482

72,440,940

1, 702

45,733
14.474

33,oi5

Francs.

9 , 4 7 2 , 967
3 , 3 2 7 , 177
5 1 , 5 2 1 , 835
1 3 , 1 7 2 , 543
5 , 9 0 7 , 567
4 5 , 8 3 8 , 743
10,930,
50,859,
4,124,
823.
14,159,
3,153,

Assets
available
within
8 days.*

626
942
252
944
233

226
7. 4 5 6 , 225
1 1 , 0 4 8 , 550
S i o , 246 J
3 , 107, 335
3 . II-7. 093
5.56o, 587
5 0 1 , 223

1,409,230
985,322
50,834,002
1, 120, i n
i , 3 i i , 335
1, 767, 733
442,524
9, 366, 120
517,882
276,732
2, 918, 47c
302,27c
1,022,345
211.890
708,244
848,764
x,749,707
387,386

244,593,314

76,918,048

4.965,081
1, 4 2 0 , 312

329,739

M1XBI> BANKS. •'

Bank of Argovie
Cantonal Bank of Zoug

1, 782, 230

Total of both categories.

129, 000, 000

17,583,038

,450,689

1, 787, 910
885,435
2,673,345

6,385,393

1,085,815

75,114,285

2 5 0 , 9 7 8 , 707

78,003,863

« Under these headings is included 10 per cent of the amounts of the bills payable and bills receivable, respectively.
& The Cantons holding only half of the capital, only half of the actual items is here set down

83700—10.

(To face page 129.)

756,076

National

Monetary

Commission

larly only second-class paper was discounted at the official rate, while the first-class paper used as cover for
notes was discounted for the most part at the private
rate, or even one-eighth to one-fourth per cent below this
rate, and even bills secured by collateral at certain times
found takers at one-half to i per cent below (instead of
as much above) the official rate of discount—it is quite
evident that the official rate could not serve as a basis for
calculating the gross profits of the bill-portfolio; the private rate of discount had to serve as the measure of profitableness, and the average of this for 1902 was 2.93 per
cent, or approximately 3 per cent. Considering that the
six preceding years—which, to be sure, fell into the period
of intense business activity and consequently could not
be regarded as average years, but as exceptionally favorable years—showed a somewhat higher average of the
private rate of discount, a rate of 3% per cent was adopted
as the basis of the calculation.
Francs.

Average profit of 3% per cent upon 54,699,619.15 franes__ 1, 777, 737. 62
Deduct the following expenses due exclusively to the issue of bank notes:
(1) Cost of making and renewing the banknote forms per annum (average for the
Francs,
years 1883-1902)
41,854.05
(2) Federal control t a x of one-tenth per
cent of the average actual issue of notes
(amount for the year 1902)
122,830.55
(3) Cantonal taxes upon the issue of notes
and upon the stock deposits (amount for
the year 1902)
657, 368. 80
(4) Clearing-house expenses; cost of transport of notes from one bank to another
and to the board of inspectors; insurance premiums; transport cost and loss
in exchange for the supply of silver; administrative expenses incurred in the
execution of all duties connected with
the issue of notes
451, 500. 00
1,273,553.40
Net profit

504, 184. 22
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The

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Law

This sum represents the average yearly net profit that
the Cantons derived from the bank-note business of their
own institutions and the mixed banks, according to the
calculations of the Federal Finance Department.
For every million of the note issue the proceeds would
consequently be 3,908.40 francs; or 39.1 centimes (40
centimes in round numbers) would be the net profit for
every 100 francs of the issue.
Taking a profit of 40 centimes per 100 francs of the
issue, the total cantonal issue of 129,000,000 francs would
thus yield a net profit of 516,000 francs. To this sum is
to be added the amount which the Cantons drew as cantonal bank-note and stock-deposit taxes, and which, as
already mentioned has to be regarded as a total loss; in
1902 this amount was 1,240,547 francs.
The sum of 1,756,547 francs represents, therefore,
according to the calculations of the Federal Finance
Department, the entire falling off in the cantonal
revenues.
This sum was declared in some quarters to be too low,
and the method of calculation was subjected to more or
less just criticism.^ This criticism, however, immediately lost its point, since the bill drawn on the basis of
these calculations provided from the start a greater indem«Ernst, Eine schweiz. Bundesbank, pp. 225-6 and elsewhere, especially
in the daily press. The results of the calculation reproduced above are less
by about 750,000 francs than those given by the author's own investigations {loc. cit., and also Zeitschrift fur Volkswirtschaft, Sozialpolitik, und
Verwaltung, 1903, p. 69). However, the author regards it as unnecessary
to go into any explanation of the difference or any defense of his own
figures. He considers his own calculations as quite as sound as the one
given above, b u t for the reasons stated in the text he does not attach to
either, or indeed to any calculation of this kind, any value beyond that of a
probable estimate.
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National

Monetary

Commission

nity for the Cantons than would have been necessary
merely to cover the estimated loss of revenue. The difficulties that would have arisen in the case of any new bill
which, in its execution, would jeopardize the cantonal
finances were thus brushed aside in a generous manner.

132

CHAPTER

THE

FEDERAL

IV.

LAW RESPECTING
N A T I O N A L BANK.

THE

SWISS

vSECTION I.—THE BILL PRESENTED BY THE BUNDESRAT ON
JUNE 13, 1904.

The conciliatory spirit t h a t prevailed in t h e debate on
the Scherrer-Fuellemann motion was again shown in t h e
report giving the reasons for t h e bill submitted b y t h e
Bundesrat to t h e Bundesversammhmg J u n e 13, 1904.
This bill, which was prepared under the direction of Bundesrat Comtesse, with the cooperation of a commission of
experts, presented a contrast to the two preceding bills,
drawn b y Bundesrat Hauser, in t h e spirit of conciliation
and compromise which it manifested, b o t h in its fundamental features and in its details. I t was based on t h e conviction t h a t " i t would be a great mistake simply for t h e
sake of a theory to make t h e establishment of a central
b a n k of issue doubtful for m a n y years, if not altogether
impossible."
The bill was the result of a compromise between t h e
various opposing interests and desires involved. Accordingly, it found hardly any unqualified approval when it
was made public. Indeed, only those declared for it
without reserve who were resolved, in seeking a solution of
t h e note-bank problem, to cast aside all personal sympathies and antipathies, all p a r t y interests and preferences,
and to view the question exclusively from t h e economic
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National

Monetary

Commission

standpoint. The bill did not, however, meet with downright rejection in any quarter, as was t h e case, for example,
with t h e bill introduced in 1894, b u t t h e representatives of
t h e various groups hoped t h a t b y laying stress on such of
their demands as had not, in their view, obtained sufficient
consideration in t h e bill they might still influence t h e
result of t h e compromise. On all sides it was agreed t h a t
a middle course h a d been pursued and t h a t under t h e circumstances t h e solution embodied in t h e bill would be
sure to command a great majority in its support.
I n t h e following expose we shall not enter into all the
details of t h e bill; this is partly unnecessary, because nearly
all its provisions passed into the law without alteration,
and these will be treated in t h e analysis of t h e law itself.
A t this point only t h e fundamental features of t h e bill will
be considered—viz, its a t t i t u d e toward t h e question of
state or private bank, its proposals as to t h e indemnification of the Cantons and the division of t h e net profits, and,
last but not least, its a t t i t u d e toward t h e question of t h e
seat of the bank.
I . CHARACTER OF T H E

BANK.

Of t h e two alternatives which article 39 of t h e federal
constitution provided for t h e kind of bank to be established, the idea of a pure state b a n k h a d to be abandoned
a t once b y t h e author of the bill as being an impossibility.
If t h e remembrance of the popular vote of February 28,
1897, and of the effectiveness among the people of t h e arguments against a state b a n k p u t forward during t h e campaign preceding t h a t vote, h a d not sufficed to show t h a t a
parliamentary majority, and above all a popular majority,
134

The

Swiss

Banking

Law

for a new state bank law was out of the question, the determined stand taken by the representatives of French Switzerland against the programme of the Scherrer-Fuellemann
motion in its original form would certainly have set at rest
all existing doubts. On the other hand, however, the preference shown for the idea of a state bank, and still more
the aversion to turning over to private capital the profits
of the bank-note monopoly, was so widespread that if the
bill was to escape rejection in the Bundesversammlung, it
could not embody the second of the constitutional alternatives—that of a central joint stock bank, carried on with
the cooperation and under the supervision of the Confederation—unless the words ''cooperative" and "supervision " were to be given the widest possible interpretation.
The problem was to interest private capital to such an
extent that the institution could be called a joint stock
bank and to secure the cooperation of men of business
experience and business standing for its administration,
but at the same time to make it impossible for the private
capital ever successfully to place its interests in opposition
to the public interests, and in such cases to control the
bank.
The organization proposed in the bill of the Bundesrat
coupled the character of a private bank with that of a
state bank, as was rightly indicated in the accompanying
report of reasons. It had the character of a private bank
in that private capital was to participate, in a definite proportion, in furnishing the capital; that the bank was given
a status that was autonomous and independent of the
State; and that the shareholders were to have in the general meeting an organ by means of which they could have a
135

National

Monetary

Commission

definite influence on the election of the bank authorities,
and through this on the management of the bank. At the
same time the organization proposed by the Bundesrat
met the wishes of the advocates of a pure state bank in so
far as the greater part of the capital was to be provided by
state bodies; the net profit of the bank was to go entirely
to the Confederation and the Cantons, to the exclusion of
the owners of the private capital; and the naming of the
majority of the members of the boards conducting the
affairs of the bank was to be put into the hands of the
Bundesrat.
Going into details, the bill contained the following
specific provisions:
(a) Bank capital.—The capital of the bank was fixed at
50,000,000 francs, divided into 100,000 shares of the nominal value of 500 francs each. Only half of the capital was
to be paid in at first. The bill did not call for a direct
participation of the Confederation in providing this capital;
it assigned two-fifths of the capital to the Cantons in proportion to their population, one-fifth to the existing banks
of issue in proportion to their actual note circulation
on December 31, 1902, and the remaining two-fifths, together with such amounts of the share issue assigned
to them as were not taken up by the Cantons or the banks
of issue, to subscriptions of private capital.
The proportions of this division of the capital between
the Cantons, the banks of issue, and private shareholders
were in accordance with the mode of division proposed by
the Swiss Handels- und Industrieverein in its bill submitted
in March, 1898, and it presented a number of advantages
to all concerned.
136

The

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Banking

Law

By the reservation of two-fifths of the capital to the
Cantons the latter secured a not inconsiderable share in
the organization of the bank, and also were given a small
financial advantage, quite apart from the direct indemnification, of which we shall speak later on; the Cantons would
be able to obtain all the money necessary for taking up
the quota of the fundamental capital reserved to them at
a rate of interest which would be at least one-half per cent
below the guaranteed dividend of the national-bank shares,
and the gain resulting from this difference between the
two rates of interest would be a continuous revenue for
their treasuries.
The reservation of one-fifth of the capital to the banks
of issue was calculated to create a more favorable attitude
toward the bill in two directions. As the bill made no
difference between state and private institutions, and the
latter were thus entitled to participate in the one-fifth assigned to the banks in proportion to their note circulation,
the one possible method had been found for drawing the
existing private banks of issue into some degree of cooperation with the future bank and of participation in the proceeds of its business. The influence which these private
banks, as well as the cantonal banks, can secure on the
strength of their holdings of shares is sufficient to insure
to the existing banks of issue a representation of their
interests in the managing boards of the future central bank
corresponding to the importance of the various banks.
Moreover, the advantage derived by the cantonal treasuries
from the difference between interest payable and interest
receivable, mentioned above, will be increased, if only
137

National

M o n et ar y

Commission

slightly, through the shares that fall to the cantonal banks
in proportion to their note circulation.
Finally, the share assigned to private capital is sufficiently below half of the bank capital to make impossible
the control of the bank boards by representatives of the
private shareholders, while, on the other hand, it is just
large enough to assure a fair rate of interest for the private capital and to secure for the bank management representatives of trade, industry, and agriculture, who by
their experience and knowledge will contribute to the success of the bank.
(b) Election of the bank authorities.—It is well known
that the real character of a bank does not depend so
much upon the proportion in which the private capital
stands to the total bank capital as upon the influence
which the private capital is allowed to have upon the
internal administration of the bank. In this direction,
too, the Bundesrat's bill took off the point of all fears.
We can not at this place deal with the organization of
the general meeting. Of the 40 members of the bank
council, 25 are to be nominated by the Bundesrat and
15 by the general meeting of the shareholders; the president and vice-president of the bank council are to be
chosen by the Bundesrat; these exercise also the functions of president and vice-president of the bank committee, which is to consist of 7 members, elected by the
bank council. The members of the real managing and
executive authority, the direktorium, the subdirectors,
and the members of the local managements, are also to
be elected by the Bundesrat.
138

The

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Banking

Law

Those who feared that if the bank-note monopoly were
conferred on a central joint-stock bank there might result
so preponderant an influence of private capital upon the
administration of the bank as to endanger the rights of
the State had their fears set at rest by the two leading
features of the bill as above set forth—the participation
of private capital only to a limited extent, and the reservation to the public authorities of a decisive influence
upon the internal organization of the bank. At the same
time the controlling influence was secured to the State—
and herein lies the difference between this bill and that
of 1894—without imposing extensive responsibilities on
the State and without identifying the nation's credit with
that of the bank.
2 . INDEMNIFICATION OF THE CANTONS.

In the fourth section of the third chapter it has been
shown how the Federal Finance Department, which was
intrusted with the drafting of the new bill, calculated the
loss a that the cantonal treasuries would suffer through the
monopolization of the issue of bank notes at 1,756,547
francs. This is less than what has been calculated by
others; it is also below the figures arrived at by the cantonal finance directors; nevertheless the author of the bill
counted on being able to satisfy the financial claims of
the Cantons as long as they did not go beyond reasonable
limits. And this for two reasons. In the first place,
the bill proposed to pay to the cantonal treasuries as a
a The ' ' l o s s " here and elsewhere referred to is annual loss; and likewise
with the indemnity.
139

National

Monetary

Commission

direct indemnity not only the 1,756,547 francs calculated,
but nearly 280,000 francs in excess of this sum; and, secondly, this sum represented only a part—an installment,
so to say—of the indemnification which was to be received by the Cantons, since it was to be increased by the
share of the Cantons in the net profits of the central bank
of issue.
A distribution of the estimated total loss of 1,756,547
francs over the various Cantons in a manner corresponding to the estimated loss of each would have led to criticism from many quarters. Such criticism was forestalled in the following passage of the report stating the
reasons for the bill:
In the first place, those Cantons that own no bank of
issue or that have no bank of issue at all in their territory might have complained of unfair treatment, and this
not without justification, if the Cantons that own banks
had exclusively received indemnities for years to come
for the loss of a privilege which they had fully taken
advantage of, and had at times exploited to an excessive
and detrimental degree.
And not only do inequalities exist in regard to the profits
of the bank-note business, but an indemnity for the loss
of bank-note taxes, based on the amounts hitherto derived
from these taxes by the Cantons, would have led to as
great, or even greater, unfairness. There existed then,
and there still exist, great differences in the utilization of
the right of levying bank-note taxes. The Cantons of
Uri, Schwyz, Obwalden, Nidwalden, Appenzell Within,
and Appenzell Without levied no bank-note taxes on the
140

The

Swiss

Banking

Law

banks in their territory in 1902; among the others the
rate varied between 0.3 per cent and 0.6 per cent.05
Naturally, all those Cantons that have their own banks
and which levied a bank-note tax at the rate of 0.6 per
cent would have approved the bill. In other words, precisely those Cantons would have been given preference
which have carried to the extreme limit of the law their
right to tax bank notes and which have thus forced the
banks to obtain the greatest possible profit from their
privilege of note issue, to the detriment of the currency
and credit system of Switzerland. Those Cantons that
have made only a nominal use of their right of taxation,
and especially those that have levied no tax at all, would
naturally have felt injured. And the greatest disadvantage would have been experienced by those Cantons
which had no bank of their own or those in which, like
Valais, there existed no bank of issue at all.
Practically all the Cantons, however, are in a difficult
economic position, and they are consequently all in need
of financial support in approximately the same degree.
Again, all the Cantons without exception, though in
unequal measure, will assist in creating the profits of the
National Bank, out of which, after all, in the last instance
these indemnities must come.
Owing to these considerations, and also to the fact that
according to article 9 of the bank act of 1881 the grant of
" a right of note issue constitutes no basis for a claim to
a Zurich, Berne,
Grisons, Thurgovie,
on the authorized
Argovie 5 per cent;

Lucerne, Glaris, Zoug, Soleure, Basle-city, St. Gall,
Tessin, Vaud, and Neuchatel levied a t a x of 6 per cent
issue of notes, and Basle-country, Schaffhouse, and
Fribourg 4 per cent, and Geneva 3 per cent.
141

National

Monetary

Commission

i n d e m n i t y " — s o t h a t t h e sums to be paid to t h e Cantons
h a d not so much t h e character of specific indemnities
as of a distribution of money to t h e Cantons by t h e Confederation—the author of the bill arrived at t h e conclusion
t h a t it would be neither consistent nor just to carry out
this distribution in a manner varying from Canton t o
Canton, according to calculations of t h e specific losses
supposed to be sustained by each, b u t t h a t it would be
better to divide the sum in a more uniform way and one
t h a t would give all possible consideration t o each of t h e
Cantons.
*
The most obvious mode of distribution, and t h e one
t h a t agreed most with what was customary in Switzerland
in affairs of this nature (e. g., in t h e distribution of t h e proceeds of t h e alcohol monopoly, in the calculation of t h e
subvention for the elementary schools, etc.) would h a v e
been t h a t of distributing the indemnity among t h e Cantons in proportion to their population. This mode of distribution was consequently adopted in the bill. Certain
special considerations, however, influenced t h e author of
t h e bill, in fixing t h e scale of distribution, t o t a k e into
account, for a transition period of fifteen years, not only
t h e element of population b u t also t h a t of trade.
A distribution of the indemnity to t h e Cantons based
onfy upon the proportion of their respective populations
would have led to the result t h a t such Cantons as were
small b u t contained large commercial and industrial centers would have received less t h a n the Cantons t h a t h a d a
larger number of inhabitants b u t which were of less commercial and industrial importance, and t h e indemnity
142

The

Swiss

Banking

Law

received b y t h e latter would have been in excess of t h e
losses actually sustained, while on the other h a n d such
Cantons as Basle-City or Geneva would have come o u t
considerably worse. Such a situation would have certainly led t o t h e result t h a t those Cantons which came
out worst in t h e distribution would have opposed t h e bill;
and it was necessary, therefore, in order to insure t h e acceptance of t h e bill, to obviate this danger by t h e device
of a slow transition.
The bill solved this problem b y taking into consideration during t h e transition period not only t h e population
b u t also t h e intensity of business activity, and it took as
a measure of this intensity the amounts of the cantonal
issues, i. e., t h e amounts of the authorized note issues of
the cantonal, mixed, and private banks doing business
within the several Cantons.
I t was further necessary to estimate the loss of t h e
various Cantons b y a uniform method. This was done
b y setting down the actual loss resulting from t h e withdrawal of the bank-note privilege, in accordance with t h e
calculation given above (p. 130), a t 40 centimes for every
100 francs of t h e authorized issue and t h e loss of t h e note
t a x at an average of 0.5 per cent on t h e actual issue.
This led to t h e following result:

143

Table of losses sustained by the Cantons, estimated by a uniform method,

Authorized
issue of the
cantonal a n d
mixed banks.a

Zurich
Berne
Lucerne
Ur
Schwyz
Obwalden
Nidwalden
Glaris
Zoug (one-half capital)
Fribourg
—
Soleure
Basel (city)
Basel (country)
Schaff house
Appenzell (without)
Appenzell (within)
St. Gallen _ _ _ - _ . .
Grisons
Argovie (one-half capital) _
Thurgovie
Ticino

T o t a l actual
issue, average
of the years

1898-1902.

Profit o n
notes, 4 0
centimes per
100 francs
of authorized issue.

Francs.

30,000,000

27.334, O O O

120,000

20,000,000

i8,999, 0 0 0

80,000

6,000,000

10,741, 0 0 0

24, 0 0 0

1,500,000

1.474. 0 0 0

6, 0 0 0

3,000,000

2,930, 0 0 0

12, 0 0 0
4, 0 0 0

Francs.

1,000,000

984, 0 0 0

1,000,000

977. 0 0 0

4, 0 0 0

2,500,000

2,433. 0 0 0

10,000

i,500,000

2.445, 0 0 0

5,000,000

7,043. 0 0 0
4,913, 0 0 0
6
33,088, 0 0 0

5,000,000
10,000,000

1.945, 0 0 0
5,478, 0 0 0
2, 928,0 0 0

2, 0 0 0 , 0 0 0
2, 5 0 0 , 0 0 0
3,000,000

6, 0 0 0
20,000
20,000
40,000
8, 0 0 0
10,000
12,000

1 . 0 0 0 , 000

4. 0 0 0

14,000,000

31.087, 0 0 0

56,000

4,000,000

3,915, 0 0 0
5. 297.0 0 0
5,465. 0 0 0
8,051, 0 0 0

16,000

1.ooo,000

3,000,000
5,000,000

12,000
20,000

Taxation of
notes, 0.5 per
cent on the
actual issue.

Francs.
136,670
94,995
53.705
7.37o
14,650
4,920
4,885
12,165
12,225
35.215
24,565
165,440
9. 725
27.390
14,640
5.000
155.435
19.575
26.485
27,325
40,255

Vaud

n , 737.ooo

Neuchatel

Total
0
b
c

5^.685

58.685

8,ooo,ooo

15,618,000
22,776,000

32, 000

78,090
113,880

n o , 090
113,880

129,ooo,000

228,658,000

516,000

1, 1 4 3 , 2 9 0

1 , 6 5 9 , 290

As regards Zoug and Argovie only half of the issues, corresponding to the share of these Cantons in the. capital of the banks.
Average of issues during 1901 and 1902.
Average of issues of the year 1902.

h
&

National

Monetary

Commission

This table presents a list of t h e losses t h a t the Cantons
would sustain according to t h e uniform basis of estimate;
or, in other words, the figures showing how much each
Canton should receive (so far as possible as a minimum)
in compensation for its loss in respect of t h e note business in its territory; b u t it still remained to be determined how much should actually be awarded t o each Canton, after taking into the fullest possible consideration t h e
total loss as shown in t h e above table in relation t o t h e
population and to t h e intensity of business activit}^—the
latter measured, as above stated, b y the a m o u n t of t h e
authorized note issue. This task led to a number of trial
calculations on the basis of variable assumptions as t o
b o t h of the factors t h a t had t o be taken into consideration. I t was necessary to hit upon such assumptions as
did not, on t h e one hand, result in too great a total for
the entire indemnity, and on t h e other h a n d gave t o each
individual Canton a compensation t h a t was adequate in
the light of the foregoing considerations.
Finally, with the approval of the Commission of E x perts, t h e following basis was adopted for calculating t h e
compensation payable to the Cantons:
(a) Fifty centimes for every ioo francs of t h e issue authorized within the territory of each Canton on December
3 1 , 1902.

(fc) Twenty-five centimes for every head of t h e population of each Canton, as shown b y t h e figures of t h e last
census.
The following table shows t h e amounts of the cantonal
indemnities as calculated on this basis:
146

Table of indemnities for the various Cantons.

Cantons.

Zurich
Berne
Lucerne
Uri
Schwyz
Obwalden
Nidwalden
Glaris
Zoug
Fribourg
Soleure
Basle-city
Basle-country
Schaff house
Appenzell Without
Appenzell W i t h i n .
St. Gallen
Grisons
Aargovie
Thurgovie
Tessin
Vaud

Authorized
issue of the
various
Cantons.

50 centimes
per 100 francs
of note issue.

Francs.

30,000,000
20,000,000
11,000,000
1,500,000
3,000,000
1,000,000
1,000,000
2, 5 0 0 , 0 0 0
3,000,000
7,250,000
5,000,000
34, 000, 000
2,000,000
6,000,000
3,000,000
1,000,000
S$,000,000
4,000,000
6,000,000
6,000,000
9,250,000
12, o o o , 000

150,000
ioo,000
S5»000
7. 500
15,000
5, 000
5,000
12,500
15,000
36,250
25,000
170,000
10,000
30,000
15,000
5,000
165,000
20,000
30,000
30,000
46,250
60,000

Population of
the Cantons
(Census of
1900).

431.036

25 centimes
per head of the
population.

Total
indemnity.

Francs.

107- 759
147,358
36,630
4,925
13,846

25,191

257,759
247,358
91,630
12,425
28,846
8,815
8, 267
20,587
21,273
68,238
50,191

1 1 2 , 2 2 7

28,057

198,057

68,497
4i,514
55,28i

17, 124

13,820

27, 124
40,379
28,820

13,499
250,285

3,375
62,571
26,130
5 1 , 625
28,305
34, 660

8,375
227, 571
46, 130
81,625
58,305
80,910

70,345

130,345

S89.433
146.519
19,700
55,385
15,260
13,070
32,349
2
5> 093
127,951
100,762

104.520

206,498
113,221

138,638
281,379

3,815
3 , 267
8,087
6 , 273

3L988

10,379

Table of indemnities for the various Cantons—Continued.

Valais
NeuchatelGeneva
Total .

Authorized
issue of the
various
Cantons.

50 cenurnes
per 100 francs
of note issue.

Francs.

Francs,

16,ooo,ooo
24, 0 0 0 , 000
241, 5 0 0 , 000

80,000
120,000

Population of
the Cantons
(Census of
1900).

114,438
126,279
132,609

25 centimes
per head of the
population.

Total
indemnity.

Francs.
28,609
3LS70
33,152

Francs.
28,609
in,57o
153,152

828,861

2,036,361

The

Swiss

Banking

Law

The entire amount payable to the Cantons was consequently 2,036,361 francs, while the original estimate of
the loss was only 1,756,547 francs.
Accordingly the amount of 279,814 francs was to be
paid to the Cantons over and above the estimated falling
off in their revenues.
Now it became necessary that the factor of trade
intensity which was introduced for the transition period
should gradually be got rid of. For this purpose a sliding
scale was decided upon in the following manner: Beginning with the sixth business year of the bank an alteration in the mode of distribution was to take place; namely,
the portion based upon the issue of notes was to be
reduced by 5 centimes every year and this 5 centimes
was to be added to the portion based upon the population.
In the fifteenth business year the portion based on the
amount of note issue would have fallen away entirely,
and after that the payment to be made by the bank
would be simply 75 centimes for every head of the population. The progress of this change in successive years
is shown in the table opposite.
An examination of the table shows that the proposed
sliding scale would not only get rid of the factor of trade
intensity, but would also bring about an increase in the
total of the payments. The compensation, which was
set down 2X 2,036,361 francs for the first five years, would
have increased continually and would have reached
2,486,580 francs in the fifteenth year. At all events,
these rates were high enough to entirely satisfy all the
expectations of the Cantons. Even as recently as the
149

Indemnity

payable to the Cantons on the basis of their respective bank-note issues and their

First to fifth year.
Authorized issues Population
as per
in thoucensus of
sands of
1900,
francs.

Zurich
Bern
_
Lucerne
_
Uri
Schwyz
_
Obwalden
Nidwalden
Glaris
_.
Zug
Fribourg
Soleure
Basle-city
Basle-country
!
Schaffhausen
_
Appenzell Without
Appenzell Within
St. Gallen.-Grisons.
Argovie
.Thurgovie- Tessin
Vaud
Valais
Neuch&tel
Geneva

431.036

150,000

589.433

100,000

146,519
19, 700

55,000
15,000

000

55.38s
15,260

000 j

13,070

5.000

500 j

3 2,349

000 j

ooo
ooo
ooo
500
000

7.SOO
S.ooo

\ Population.

Seventh

Eighth

270,863

277,414

283,966

290,518

297,070

303,622

310.173

316,725

286,301

323,277
442,075

I02,585

104, 412

403,131
106.237

422,603

95,282

344,716
100,760

383,660

108,063

109,889

4.925
13.846

12,425

93.456
12, 660

325.. 245
98, 934

364,188

91,630

305,773
97,108

12,895

13.130

13,365

13,600

14,070

14,775

31.385

32,654

9,341

9, 604

35,193
10,130

3 7, 7 3 i
10,656

40,270

8.815

8,728

33,923
9,867
8,882

14.305
39,000
10,919

14,540

29,115
9,078

13.835
36, 464
10,393

41,539
i1,445
9,802

21,690

28,846
8,267

8,421

12,500

20,587

20,955

8,574
2 1 , 322

25.093

15,000

6,273

21.273

21,028

20,783

20,537

73,783
55,267

76,555
57,805
163,891

31.088

68,238

7x,010

25,000

50, 191

000 j

112,227

170,000

25.191
28,057

52,729
186,668

000 I

68,497

IO,000

17,124

27,124

29,549

000

4L5I4
55,281

30,000

40,379

15,000

10,379
13,820

39,454
30,085

1 7 5 . 2 79
3L974
38,530
31,348

5.000

3,375

8,375

165,000

62,571

227,571

9,550
223,585

8,725
219,600

215,614

20,000

26, 130

46, 130

49,356

52,582

55,8o8

000

13,499
250,285
104,520
206,498

30,000

51,625

81,625

000

113.221

30, 000

28,305

58,305

88,949
60,966

96,274
63,627

103,599
66,288

250

138,638

46,250

34,66o

80,910

83,216

87,830

000

281,379

60,000

70,345

130,345

138,414

28,609

126,279

80,000

3i,57o

i n , 57o

34,331
109,884

85.523
146,483
40,053

1 3 2 , 609

120,000

33,152

153.152

114.438

828,861

(To face page 149.)

Fourteenth

266,830

36,250

16, 0 0 0
24, 0 0 0

Thirteenth

264,311

100,762

000

Twelfth

247.358

127.951

000

Eleventh

257, 759

250 j

000

Tenth

107,759
147,358
36,630

000 j

000

Ninth

year—25
year—10
year—45
year—40
year—5
year—15
year—35
year—30
year—20
centimes for c e n t i m e s for c e n t i m e s f o r centimes for c e n t i m e s f o r c e n t i m e s f o r c e n t i m e s f o r c e n t i m e s f o r c e n t i m e s for
Fifteenth
e v e r y 100
year—75
e v e r y 100
e v e r y 100
e v e r y 100
e v e r y 100
every 100
e v e r y 100
every 100
e v e r y 100
francs of is- f r a n c s of i s - f r a n c s of i s - francs of is- f r a n c s of i s - f r a n c s of i s - f r a n c s of i s - f r a n c s of i s - f r a n c s of i s - c e n t i m e s p e r
Total coms
u
e
a
n
d
70
s
u
e
a
n
d
50
s
u
e
a
n
d
60
s
u
e
a
n
d
65
s
u
e
a
n
d
40
sue
and
45
s
u
e
a
n
d
55
sue
and
30
s
u
e
a
n
d
35
h e a d of
pensation to
the Cantons. centimes per c e n t i m e s p e r c e n t i m e s p e r centimes per c e n t i m e s p e r c e n t i m e s p e r c e n t i m e s p e r c e n t i m e s p e r c e n t i m e s p e r p o p u l a t i o n .
h e a d of
h e a d of
h e a d of
h e a d of
h e a d of
head of
h e a d of
head of
h e a d of
population.
population.
population. p o p u l a t i o n . p o p u l a t i o n . p o p u l a t i o n .
population. p o p u l a t i o n . p o p u l a t i o n .

3.815
3.267
8,087

Total.
83700—10.

issue

Sixth

populations.

198,057

28,820

2, 036, 361

9, 188

9,342

22,057

9.035
22,425

22, 792

20,292

20.046

19,801

79,328

82,101

84.873

23,159
19,556
87,646

23.527
19, 310
90,418

60,343
152,502

62,881

65.4T9
129,725

67,957
118, 336

70,495
106,948

141,114

1 1 , 182
9,649
23,294

24, 262

19,065

18,82c

93,191
73,033

95,963
75.571
84,170

44,098

46,523

95,55'9
48,948

32,984

3 2 , 060

36,405

33,9o8
3 7 , 669

38,933

40,197

9,424
203,657

9,599
199,671

9, 774
195,685

9-949
191,700

187,714

62,260

65,486

68,712

118,249

1 2 5 , 5 74
74,271

132,899

7L938
140,224
79,594

75-164
147,548
82,255

154,873
84,916

99,365
794,896

101,671

103,978

202,965
80,106

211,034
85,828
9 9 , 45 7

39,248

37,6o5

36,824
36,681

3 2 , 612

33,876

35.757
35,140

8, 900

9,075
211,628

9.249
207,642

59,034
n o , 924

34.399

9-, 495

68,949

71,610
92,444

154.552

90, 137
162,621

108,198

45,775
106,512

51,497
104,825

147.783

142,413

137.044

2,081,383

2, 126, 405

2, 1 7 1 , 427

170,690

41,673
3 4 . 833

94, 751
178,758

76,933
97,058
186,827

6 2 , 941
101,453

68,663
99,767

74>385
98,081

131,674

57, 219
103,140
126,304

120,935

115,565

n o , 196

96,395
104,826

2, 2 1 6 , 4 4 9

2,261,471

2 , 3 0 6 , 494

2,351,516

2, 3 9 6 , 5 3 6

441,558

5 1 . 3 73
3i,135
4i,461
10,124
78,39c

94,709

2,486,58c

National

Monetary

Commission

year 1900 t h e Cantons would h a v e been satisfied with a
compensation amounting t o less t h a n half this sum. a
I n order to guarantee absolutely to t h e Cantons t h e
payment of these sums, certain provisions were included
in t h e bill which m a k e the compensation p a y m e n t s independent of t h e a m o u n t of t h e net profits of t h e bank.
The details of these provisions will be taken u p in connection with t h e analysis of the law.
3. DISTRIBUTION OF THE NET PROFITS.
T h e Bundesrat's report giving t h e reasons for t h e bill
estimates the net profit for t h e first few years of normal
business of the central bank of issue at 4,000,000 francs.
This result was arrived at in t h e following m a n n e r : T h e
average a m o u n t of t h e actual circulation of notes is about
200,000,000 francs, which, assuming a metallic cover of
50 per cent, would leave a productive note circulation of
100,000,000 francs; as other productive resources were
reckoned 20,000,000 of the share capital and 35,000,000
of noninterest-bearing deposits in t h e cheque and transfer
business. This makes an estimated total of 155,000,000
francs of productive funds, and t h e gross profit on this
sum is p u t down, certainly with sufficient caution, a t 3%
per cent.
« A minority in the Commission of the Standerat put a motion in December, 1900, on the occasion of the debate on the second bank bill, as follows:
" T h e Bundesrat is required, for the purpose of compensating the Cantons for the loss entailed upon them by the withdrawal of their privilege of issuing bank notes, to levy a yearly t a x of one-half per cent upon
the entire amount of bank notes issued by the central bank, which sum
is to be handed over to the various Cantons in proportion to their population."
The proceeds of such a tax were estimated at 1,200,000 francs per
annum,, I t was repeatedly pointed out t h a t it was only the rejection of
this proposal that sealed the fate of the bill.
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Accordingly, we have the following estimate of probable results:
Francs.

Actual note circulation
50 per cent cover in specie

200, 000, 000
100, 000, 000

Available for profit-earning purposes

100, 000, 000
Francs.

Productive part of the capital
20, 000, 000
Noninterest-bearing deposits (cheque and transfer accounts)
35, 000, 000
^ ^ t ooo,

Total of profit-earning funds

000

155, 000, 000

Gross profits reckoned at the rate of 3 ^ per cent
Deduct expenses of management, including yearly amount of
amortisation of the cost of producing the bank notes, etc__
Balance remaining as net profits

5, 425, 000
1, 425, 000
4, 000, 000

The foregoing estimate can hardly be designated as too
optimistic. It may rather be assumed that after the expiration of the time allowed for the withdrawal of the old
notes the yearly net profits will, on an average, exceed the
sum of 4,000,000 francs.
This assumption is especially justified by the consideration that the estimate of 35,000,000 francs for the noninterest-bearing deposits is far too low (good judges of conditions have placed the minimum of these deposits at
50,000,000 francs), and that a gross profit of $% per cent
corresponds perhaps to the returns of the discount portfolio, but certainly not to those of the collateral loan
business.
According to the provisions of the bill the distribution
of the net profits was to be as follows: A quota of 10 per
cent was to be transferred yearly to the surplus, but in no
case more than 500,000 francs; a dividend of 4 per cent
was then to be assigned to the paid-up capital; out of the
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amount remaining the compensation payable to the
Cantons was first to be provided and the dividend might
then be increased to a maximum of 4 ^ per cent, and the
remainder was to go to the Cantons and the Confederation,
two-thirds to the former and one-third to the latter.
Taking the net profit at 4,000,000 francs, a distribution
according to the terms of the bill would have resulted as
follows:
Francs.

Net profits

4, 000, 000
Francs.

Carried over to surplus (10 per cent)
400, 000
4 per cent dividend on 25,000,000 paid-up capital- _ 1, 000, 000
Indemnity handed over to the Confederation for distribution to the Cantons (amount for one of the
first 5 years)
2, 036, 361
Additional dividend {% per cent)
125, 000
Total

3, 561, 361

Amount remaining

438, 639

Two-thirds goes to the Cantons
One-third goes to the Confederation

292, 426
146, 213
438,639

4 . T H E QUESTION OF LOCATION.

Although of far less intrinsic importance than the financial difficulties, the difficulties that every new bank bill
encountered from the rivalries regarding the seat of the
central bank bulked much bigger outwardly and were far
more calculated to inflame political passions.
The state bank bill of 1894, which was rejected by the
people in 1897, placed the central seat of the bank at the
capital of the Confederation, Berne. Owing to circumstances then existing, this point attracted little or no attention during the debates that preceded the vote. The ene152

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mies of the bill concentrated their attacks upon the principle of the state bank and the tieing up of the nation's
credit with that of the bank.
In the bill, however, which was presented to the Bundesrat, after the rejection of the state bank scheme, by the
Swiss Handels- und Industrieverein, an organization representing all the great commercial and industrial interests
of Switzerland, Zurich was named as the seat of the
bank; and from that time dates the contest between these
two cities for consideration in the choice of the location
of the bank. Both found supporters in all parts of the
country. A part of French and northwest Switzerland,
and especially Basle, supported Berne in her claims, while
on the other hand the highly industrial country districts
of the Canton of Zurich and northeast and eastern Switzerland were in favor of Zurich.
The substantial arguments which could be brought forward in favor of Zurich found expression in the session
of the Bundesversammlung of June, 1899, when the late
Nationalrat Keel, of St. Gall, introduced the subject in an
important and remarkable speech. These arguments
were all more or less elaborate variations on the indisputable fact that if a central bank of issue is really to
regulate the monetary circulation of a country and to
meet its needs in the matter of exchange and discount
policy, then the management of the bank must be in the
closest touch with the money market, and must therefore
be located at a place where the fluctuations of demand
for money and the upward and downward tendencies of
economic activity can be watched daily and hourly. If
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this be admitted, it follows t h a t t h e chief center of business is t h e n a t u r a l seat of t h e central b a n k of issue.
I n t h e case of t h e central note-banks of other countries,
the practical application of this principle offered no difficulty; for t h e dominating position of such cities as Paris
or London, Berlin or Vienna in t h e economic life of their
countries could not be seriously questioned, and each of
these cities was a t t h e same time t h e political capital of its
country. B u t in Switzerland matters were different.
There is still force in t h e point t h a t was m a d e b y " Anonymus : " in 1835, when, discussing t h e difficulties of carrying
out t h e idea of establishing a "General Swiss National
B a n k , " he said: "Moreover, business in Switzerland is n o t
so preeminently concentrated in one place as it is in other
countries a t their capitals." Cities like Basle a n d Geneva,
t h e old strongholds of Swiss high finance, jealously defend
their rights and their importance as against t h e great industrial center of Switzerland and its chief banking town, Zurich, whose magnificent development is of recent d a t e ; and
in addition to this t h e economic metropolis does not coincide
with t h e political capital of t h e country. Consequently,
nothing else could be expected t h a n t h a t t h e claims of
Zurich to be m a d e t h e seat of t h e central bank would find
opponents on two sides.
As against t h e claims of Zurich, Berne presented her
own. She was able t o point out, with a certain outward
show of reason, t h a t t h e seat of t h e central bank of every
foreign country is a t t h e political capital of t h e country,
and she supported with great skill t h e demand t h a t this
example should be followed in t h e organization of t h e
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Swiss Central Bank of issue. And she drew attention to
the unquestionable fact that the possibility of keeping
continually in touch with the heads of the Federal Government could not fail to be of advantage to the bank.
The demands of Berne were warmly supported in
Geneva and Basle. It was thought that Berne, being
insignificant as a banking center, would offer a better
guaranty of impartial consideration for the interests of
all parts of the country, while on the other hand it was
feared that if the seat were transferred to Zurich there
would result an increasing preponderance of that city in
the banking field, at the expense of the other chief banking centers. Berne, as well as Basle and Geneva, resolved to refuse assent to a bill that fixed Zurich as the
seat of the bank, while on the other hand Zurich and its
adherents threatened the rejection of any proposal that
placed the seat of the bank elsewhere than at Zurich. In
this contest, which was hardly pleasant for either party,
Zurich was justified in putting forward the claim that considerations of local patriotism and fears of a possible preponderance of the central seat in the commercial world
must give way to the fact that the right of existence of the
central bank depends upon the possibility of its being
able to acquire a dominating position in the Swiss money
market, and that this dominating position could be
attained by Zurich only. The objection that the development of the bank might be unfavorably affected by its
management being exposed to the influence of the business
world of Zurich was met by the retort on the part of
Zurich—with quite as much justification—that while the
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history of banking offers several instances in which b a n k s
of issue suffered from t h e consequences of too much state
interference in their management, no case was known in
which an unfavorable effect was produced by a close contact between t h e activities of economic life and t h e b a n k
which promotes these activities and which, in turn, is supported by them. Angershausen, who was above all
influences of local politics, doubtless had this fact in mind
when he said: " Switzerland should feel herself fortunate in
having the possibility of fixing the seat of the board of
management a t the chief business center, which is not at
t h e same time t h e political capital, and t h u s making more
certain the freedom of the b a n k management from t h e
influence of politics or governmental finance."
I n the course of years the rivalry of Zurich and Berne
had continually assumed a more pronounced character, and
the fact t h a t this rivalry was supposed to be the cause of
the failure of t h e bank bill of 1899, though in reality there
were other motives t o account for it (see p. 109), goes t o
show how very important the question of t h e b a n k seat
was considered.
The bill of J u n e 13, 1904, found, however, a way out of
this dilemma also; the Bundesrat proposed t h a t t h e designation of the central seat should not be made in t h e law
itself, but reserved for special determination b y t h e Confederation. The Bundesrat was led to this conclusion by
the following considerations:
The realization of t h e object contemplated in article 39 of
the federal constitution should not depend upon t h e fixing
of the seat of the institution, and this detail m u s t not nee156

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essarily be included in t h e law. I t does not form p a r t of
those questions of principle which are an essential p a r t of
t h e problem to be solved and which must therefore be settled b y t h e law itself. The law concerning t h e establishm e n t of a central b a n k of issue can be complete a n d form a
whole, without t h e seat of t h e institution a n d of its local
managements being specified in it. J u s t as a law providing
for accident, invalid, and old-age insurance m a y be imagined
in which t h e seat of t h e institution in charge of it is not
fixed upon in advance, so it would be possible to accept a
law respecting t h e bank, and thus accomplish a legislative
result which would leave nothing to be desired in point of
completeness, without touching t h e question of t h e seat
of t h e bank.
Furthermore, t h e Bundesrat felt t h a t when t h e Federal
Chambers had once given their approval to a bill which
meets all practical objections and satisfies t h e justifiable
claims of t h e Cantons, t h e subsequent contest over the
seat of t h e b a n k would hardly result in t h e undoing of t h e
progress made.
Accordingly, article 3, paragraph 1, of the Bundesrat's
bill read as follows: " T h e seat of t h e National Bank
shall be determined b y a special resolution of t h e Confederation.' '
SECTION II.—THE PARLIAMENTARY CONSIDERATION OF THE
BILL.

Like t h e bill itself, t h e parliamentary debates on it,
aside from a few moments of excitement, testified t o t h e
general recognition of t h e fact t h a t t h e work of carrying
into effect article 39 of t h e federal constitution could be
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brought to a successful conclusion only through m u t u a l
concessions; and as in the preparation of the bill, so in
t h e debates there prevailed a desire to eliminate, as far
as possible, those features t h a t contributed to t h e defeat
of preceding bills.
The Standerat h a d the priority in t h e consideration of
t h e bill and dealt with the subject on the 13th, 14th, 15th,
16th, and 21st of December, 1904. The Nationalrat, on
t h e other hand, only took up the consideration of t h e
bill on March 28, 1905, continued it on March 29 a n d 30
a n d June 14 and 15, and brought it to a close J u n e 26,
1905. The decisions arrived a t b y the Nationalrat were
assented to b y the Standerat a t its meeting of September
28, 1905, and after the differences—merely differences of
form and of editing—existing between the two chambers
h a d been removed in the joint sittings of October 3 a n d
4, 1905, the law was in a position to be published in No.
42 of the Bundesblatt (October 11, 1905) as t h e ' ' F e d e r a l
law of October 6, 1905, respecting t h e Swiss National
B a n k , " subject to t h e referendum proviso.
I n the Standerat the question of entering upon t h e
consideration of t h e bill did not lead to any real discussion. At the very beginning of t h e consideration of it
Standerat Winiger declared, in the name of those groups
in the Standerat which had opposed the previous propositions of the Bundesrat, t h a t as he and his political
friends had not opposed t h e new article 39 of t h e federal
constitution, b u t on t h e contrary had helped t o secure
its adoption, so they h a d not wished to question t h e
necessity of carrying out t h e requirements of this article,
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and their opposition had been directed only against the
particular methods t h a t had been proposed. On t h e contrary, however, as to the new proposition, it was t h e
intention of himself and his political friends to assist in
p u t t i n g it through. After brief preliminaries t h e Standerat entered upon the consideration of the bill, article
by article.
In t h e Nationalrat, on the other hand, the question
whether the chamber should take up the bill led t o a
lengthy discussion. Nationalrat Scherrer-Fuellemann, as
leader of the social-reform group, moved: " T h a t t h e
chambers do not enter upon the consideration of t h e bill
and t h a t the Bundesrat be invited to recast t h e bill as
promptly as possible so as to provide for a pure state
bank, or a b a n k preponderantly of state character; the
interests of the Cantons and the cantonal banks t o be
safeguarded in the same manner as in t h e present bill."
In support of this motion, Herr Scherrer-Fuellemann presented the old arguments of the friends of a state bank.
He maintained t h a t the result of the popular vote of
February 28, 1897, could in no way be regarded as a rejection of t h e idea of a state bank on the p a r t of the people;
on t h e contrary, more t h a n 195,000 Swiss citizens h a d
decided in favor of a state bank and t h e chief group of
opponents of t h e law, t h e friends of t h e cantonal banks,
represented precisely the interests of state institutions.
I t would be possible to introduce into t h e state-bank law
all those provisions t h a t had been adopted in t h e interest
of t h e Cantons and the existing banks of issue; it would
also be possible to restrict the responsibility of t h e Con159

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federation for the obligations entered into by the bank.
The question of how the capital was to be divided between
the Confederation and the Cantons was only of secondary
importance; from the point of view of social policy the
exploitation of a bank-note monopoly belonging to the
State could not, as a matter of principle, be left in the
hands of an institution in whose financial creation private
capital entitled to dividends has participated and in whose
management private capital is allowed to have an influence.
In opposition to the demand for a state bank as a matter of principle, Nationalrat Hirter, who was known as a
staunch supporter of a state bank, as well as Bundesrat
Comtesse, pointed out that it was impossible to sacrifice
the idea of a central bank to a theory. "M. ScherrerFuellemann," said Bundesrat Comtesse, " only admits the
solution of the problem of article 39 of the constitution
by the establishment of a pure state bank; he recognizes,
with us, that it is more and more necessary for the development and the solidity of our credit to create an institution of this kind and that the absence of this institution
is prejudicial to the interests of our country. But,
gentlemen, the protection of the commercial interests
of our country and the safeguarding of our credit—all
those interests which dominate the entire question—Mr.
Scherrer-Fuellemann subordinates to the satisfaction of
a theory, a doctrine, to the theory of a state bank, even
to the extent of the complete exclusion of private capital.
His formula is uncompromising—no National Bank of
issue if it does not conform to his view; the interests of
commerce and industry will continue to suffer, the country
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will continue to be deprived of a bank which it needs so
long as you do not consent to create this institution as a
s t a t e bank. * * * M. Scherrer-Fuellemann contends,
in t h e first place, t h a t t h e negative vote against t h e first
b a n k bill does not correctly represent t h e views held by
t h e majority of t h e people and t h a t if the people were t o
be consulted to-day on this subject the elements constituting t h a t majority would not be present a'nd t h a t consequently t h e people's verdict need not be considered.
For m y part, as a democrat, I entertain greater respect
for t h e manifestations of popular suffrage, and I am not
one of those who bow before the verdict of t h e people,
b u t design at t h e very first opportunity to have their
revenge and t o carry out their purpose in spite of all.
One can always claim, no doubt, t h a t t h e people's opinion
has changed, b u t I can only reply to M. Scherrer-Fuellem a n n t h a t up to now I have seen no unequivocal signs,
no clear indications, t h a t might make one believe t h a t t h e
opinion of t h e people on this subject has been a l t e r e d . "
The other speakers in favor of the Bundesrat's bill
spoke in a similar spirit. Especially as against the apprehensions of Herr Scherrer-Fuellemann concerning t h e
participation and influence of the private capital, it was
justly pointed out t h a t the organization of t h e b a n k
offered adequate guaranties of the impossibility of a
preponderance of this influence; t h a t the share allowed
t o private capital in the institution to be established
was in itself not great and t h a t especially in view of the
extremely low limit placed upon t h e dividends, which,
moreover, were not guaranteed, there could be no talk
83700—10

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of an exploitation of t h e bank-note monopoly b y private
capital. Attention was also drawn t o t h e self-contradiction involved in t h e position represented b y ScherrerFuellemann; in view of t h e enormous difficulties which
his proposal would have t o encounter, and t h e overcoming
of which would require, upon t h e most favorable supposition, years of effort, t h e acceptance of his motion
would only result in t h e 36 banks of issue continuing t o
m a k e use of t h e bank-note monopoly, which, ever since
1891, had rightfully belonged to t h e Confederation. *' Herr
Scherrer-Fuellemann," said Nationalrat Vigier, " h u n t s
down private capital and the private banks in all directions.
W h a t is t h e effect of his proposal? T h a t private capital
will retain its actual privileged position for another six
years at least. For this very reason and in order to let
private capital drop out of t h e case, or at least t o restrict
its influence in t h e management and administration of t h e
b a n k as far as possible, I am of opinion t h a t it is better
t o t a k e w h a t is offered us here. I t is a compromise, and
t h e policy of compromise has t h u s far brought about
not evil b u t good fortune in economic questions."
I n t h e division t h e Scherrer-Fuellemann motion was
rejected b y 117 votes against 22, with 26 members absent.
Thereupon t h e Nationalrat entered upon t h e consideration of t h e bill article by article.
I n these proceedings t h e bill was not subjected t o any
fundamental alterations. T h e compromise character of
t h e bill was preserved. I t m a y even be said t h a t t h e law
which was t h e result of these parliamentary discussions
bore the character of compromise even t o a higher degree
t h a n t h e bill itself.
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A number of provisions in t h e bill gave rise t o no anim a t e d discussion, especially those under t h e following
headings:
"General observations;" " S p h e r e of activity of t h e
National B a n k ; " "Issue, redemption, and cover of t h e
b a n k notes;" " O r g a n s of t h e National B a n k ; " "Cooperation and supervision of t h e Confederation;" " P e n a l provisions;" and "Transitional dispositions."
These h a d been taken over from t h e two previous bills
with hardly any alteration, and t h e chambers were agreed
upon these points after years of discussion. Only t h e
penalty clauses were referred back to t h e commission b y
t h e Standerat, so t h a t they might be brought into agreement with the provisions of a bill establishing a uniform
penal code for Switzerland, which task, however, was
finally left unaccomplished in view of t h e very great technical difficulties involved.
The substance of the parliamentary debates and their
influence upon t h e bill will be presented in t h e following
account. I t should be remarked, however, t h a t this
account does not a t t e m p t to go into details, and t h a t it
does not seem necessary for our purpose to follow u p t h e
development of every question in the various stages of t h e
parliamentary deliberations or to report on t h e fate of
every amendment t h a t was offered. The object in view
is to fix upon the changes t h a t the Bundesrat's bill underwent in points t h a t have an important bearing on its
character, and t h e motives t h a t led to these changes.
These alterations m a y be divided into six groups; they
concern (i) t h e financial foundation, the capital of t h e
b a n k ; (2) seat of t h e b a n k ; (3) branch offices and agen163

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cies; (4) indemnification of the Cantons; (5) distribution of the net profits; (6) liquidation of t h e bank.
These subjects will be treated successively, in t h e order
named.
I . THE CAPITAL OF T H E BANK.

Against t h e proposal made by the Bundesrat t o allot
two-fifths of t h e capital of the bank to the Cantons and a
like share to private capital and one-fifth to the existing
banks of issue, no counter proposal was m a d e by the
Standerat. The opinion was nevertheless expressed, even
there, t h a t it was " not worthy " of the position of the Confederation to be excluded from financial participation in
t h e bank, and it was held t h a t it might also prove t o be an
advantage for the Cantons if t h e Confederation were interested in t h e proceeds of the b a n k ; b u t these suggestions
h a d more t h e tone of " m i g h t " t h a n " m u s t . " W i t h one
a c c o r d , t h e representatives of the French-Swiss Cantons
declared t h a t the entire exclusion of the Confederation
from financial participation constituted for t h e m the chief
point of the compromise, as it prevented the mixing u p of
the credit of t h e Confederation with the bank's credit, and
t h a t if this point should in any wray be tampered with the
whole compromise would collapse. I t was also stated t h a t ,
as t h e Confederation was to have control of t h e general
conduct of the bank and supervision of its management, it
would not be becoming to m a k e it a shareholder of t h e
bank at the same time.
I n t h e Nationalrat matters were different.
Herr
Scherrer-Fuellernann p u t t h e motion t h a t t h e distribution of the capital of the b a n k proposed in the federal
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bill be altered as follows: T h a t two-fifths be allotted to
the Confederation, two-fifths to the Cantons, and onefifth to private capital. Herr Scherrer-Fuellemann urged
in support of his motion t h a t the adoption of this proposal would be calculated better to safeguard t h e prerogative, t h e rights, and the power of the Confederation
in relation t o the b a n k and t h a t it would also conciliate
the supporters of t h e state-bank scheme, so t h a t in the
event of a referendum t h e bill would stand a better chance
of passing. As regards the first argument, Nationalrat
Vigier emphasized the fact t h a t even if the proposal of
Scherrer-Fuellemann should be adopted, the Confederation could not be given any further rights in t h e administration t h a n t h e Bundesrat had already assigned to it in
its bill. The second argument lost very much of its
effectiveness through the following declaration, m a d e
immediately after the conclusion of Herr ScherrerFuellemann's speech, by M. Ador: " I f the proposal p u t
forward by our honorable colleague, M. Scherrer-Fuellemann, is t o be accepted by this council, I desire to state
on m y own behalf and on behalf of m y friends, who, as
advocates of t h e second alternative of article 39 of t h e
Constitution, demand a private joint-stock bank, t h a t
we would energetically fight a plan in which t h e idea of
t h e Confederation participating in the capital of the
b a n k was again introduced, as we consider t h a t this
would be equivalent to an undisguised return to t h e
principle of a state b a n k . "
In order t o explain the position taken by those members who had previously supported a state bank and had
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voted against a private joint-stock bank, b u t who now,
in contrast with t h e members of t h e social-reform
group, favored t h e Bundesrat's bill, Nationalrat Hirter
drew attention t o t h e fact t h a t t h e ideal of himself and
his political friends had never been the embodiment of
t h e form of a state bank, b u t t h e establishment of a
national b a n k under t h e administration of t h e Confederation, which would serve t h e public interests exclusively and t h e proceeds of which would also go to t h e
public. These requirements were certainly realized in
t h e present bill.
The Scherrer-Fuellemann motion was rejected b y 75
votes against 29, and thus the scheme of distribution of
t h e share capital of t h e b a n k proposed b y t h e Bundesrat
was accepted by b o t h chambers.
The alterations m a d e b y t h e chambers in t h e provisions
regulating t h e distribution of t h e capital were without
great importance. A t the suggestion of t h e commission
of t h e Standerat t h e proviso was added t o t h e bill t h a t
those shares which had not been taken u p by t h e Cantons
should be allotted t o t h e cantonal banks. In t h e Nationalrat Herr Buser (Basle-Country) moved t h a t the proposal contained in t h e Bundesrat's bill respecting t h e
distribution of t h e one-fifth of t h e share capital reserved
for t h e banks of issue, which was t o be assigned in proportion to the actual note circulation on December 31,
1902, be changed and t h a t t h e figures of December 31,
1904, be used. This motion was duly carried. This was
done out of consideration for those Cantons t h a t h a d
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cuss t h e question whether and to what extent those
increases were due t o the consideration t h a t greater
bank-note issues would result in t h e obtaining of heavier
indemnities in the event of the establishment of a central
bank.
Another question belonging to this branch of t h e subject which gave rise to discussions in the chambers
related to t h e temporary taking over of national-bank
shares by t h e Confederation. There were two possibilities and both were provided for in t h e Bundesrat's bill.
One of these was t h a t the p a r t of t h e shares which was
reserved for private capital might not be fully subscribed
for; t h e other t h a t the National Bank might purchase an
existing b a n k of issue and might thus come into possession of its own shares. The Bundesrat's bill provided
t h a t in b o t h these cases t h e shares in question be taken
over b y t h e Confederation, which, however, was required
t o sell t h e m as soon as possible at the stock exchange a t
t h e market price, b u t not below their face value.
The second of those possibilities was reduced practically
to nullity b y the provision adopted a t the instance of t h e
commission of the Standerat t h a t any Canton within
whose territory a b a n k of issue acquired b y the National
Bank is situate be given the first refusal of any shares of
t h e National Bank owned by t h a t bank. The commission
of the Nationalrat approved this action of t h e Standerat,
b u t it altered t h e bill of t h e Bundesrat to t h e effect t h a t
t h e shares not subscribed for b y private capital and taken
u p b y the Confederation, and also the shares belonging to
b a n k s absorbed b y the National Bank in regard t o which
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the Cantons might not exercise their right of purchase,
should go over to the Confederation permanently, instead
of being required to be immediately sold by it.
Those who wished to exclude the Confederation completely from participation in the share capital of the national bank, as a matter of principle, made their opposition
to this proposal strongly felt. On motion of Herr Ador,
both the proposal contained in the Bundesrat's bill and
that suggested by the commission of the Nationalrat were
rejected by the vote of the Nationalrat, in which the
Standerat concurred.
This result is really in accordance with the true position
of affairs. The proposal of the commission of the Nationalrat was in conflict with the principle underlying the
bill, and the provisions proposed on this head in the bill
itself were superfluous.
For the possibility that the shares assigned to private
capital might not be fully subscribed for may be disregarded altogether. "We are establishing the central
bank," said Nationalrat Fazy, "on the basis of capital
furnished by the Cantons and by private individuals. It
is absolutely grotesque and almost inconceivable that at
the very moment when we are about to found this establishment on private capital we should be looking forward
to the possibility of private capital not responding to the
invitation. There certainly exists here a contradict ion.''
Herr Heller, who made the report of the commission of the
Nationalrat, likewise said: " I t is not to be supposed that
the Bundesrat would undertake to establish the bank without being positively assured that all the shares will be
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subscribed for and taken up, for the matter involves not
only the credit of the National Bank but the credit of the
whole country. It would be an irresponsible act on the
part of the federal authorities to undertake the foundation of the bank without being completely convinced that
the entire amount of the shares will be subscribed for.
For this possibility, therefore, there is no occasion to make
provision in the law; we may say with certainty that the
case will not arise."
For the second of the two possibilities for which the
Bundesrat had made provision in its bill, any special regulation was even less necessary. Should the case ever
occur that a bank of issue which held National Bank shares
was bought up by the National Bank and that the Canton
concerned did not see fit to make use of its preferential
right to purchase the shares, it will not be at all necessary for the Confederation to take over the said shares
for the time being, as the case is fully met by the provisions of article 628 of the Civil Code, by which a joint
stock company is required to sell without delay any of its
own shares that may have come into its possession.
The last question appertaining to the subject of the
share-capital which engaged the attention of the chambers was the distribution of new issues of shares in the
event of a subsequent increase of capital. On this subject the Standerat adopted the motion of Ust£ri, according
to which the general meeting of the shareholders, when it
determines upon an enlargement of the bank capital
(subject to the approval of the Federal Chambers) must
also decide in what proportions the new capital is to be
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divided among the three groups of shareholders—the
Cantons, the banks, and private capital. As a substitute
for this provision the commission of the Nationalrat offered
the proposal that the power to determine the method of
providing future increases of the bank's capital be withdrawn entirely from the general meeting of shareholders
and be vested in the Bundesversammlung. This motion
was adopted by both Chambers.
2. SEAT OF THE BANK.

The only question for which the federal bill had found
no solution was that of fixing the seat of the bank, and
this was the question that most agitated the members of
the Bundesversammlung. It was only when this subject
was under discussion that the debates assumed a character
of passionate excitement. Finally this question, too, was
settled by a compromise.
In place of the proposal of the Bundesrat not to designate the seat of the bank in the bank act itself, but to
leave it for subsequent action by the Confederation, the
commission of the Standerat, by 6 votes against 5, substituted a motion that the seat of the bank be named in the
law. This proposal touched the question only as regards
the principle; it left open the question whether Zurich or
Berne was to be designated by the law as the seat of the
bank.
In support of this proposal by the commission it was not
only argued that the fixing of the seat of the bank was an
essential point bearing on its organization, which had consequently to be decided in the law itself, but it was more170

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over asserted that such a procedure was tactically preferable to that proposed by the Bundesrat. " I am of the
opinion," said Standerat Hildebrand, "that the bill has a
much better chance of being accepted by the majority of
the people, in the event of a referendum, if the central seat
is decided upon in the bill. If, for instance, we select
Berne, we must be prepared to find Zurich and part of
eastern Switzerland in the opposition, but on the other
hand we may expect that Berne and the western Cantons
will display more enthusiasm for the acceptance of the
law. The reverse will happen if Zurich is chosen; probably
Berne and western Switzerland will offer some resistance.
But if we leave the question open, a complete want of
clearness will prevail, and this may be made use of to
create such distrust as may easily cause the defeat of the
whole scheme. If the law is not clear, if the central seat is
not designated, this will breed indifference, which will be
manifest at the polls. Neither Berne nor Zurich, neither
eastern nor western Switzerland, will show any enthusiasm
for the acceptance of the bill. * * * And those who are
opposed to the bill will take advantage of this indifference
and will get the upper hand."
It may be said that this view of the situation had as
much claim to consideration as did that of those who
maintained the proposal of the Bundesrat as against that
of the commission of the Standerat. " If you pursue the
course that we propose," said Nationalrat Hirter, "you
will at least reach the result of giving the two chambers a
complete bank law, and if, as may be expected, the referendum is invoked, the people will be able to pronounce
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upon the basis, the organs, and the character of the bank
without mixing with these the question of the seat of the
bank. When such a law has once passed the referendum
stage and gone into force, the chief questions will have
been cleared up; and then, to be sure, the question of the
seat will have to be settled. * * * And I am confident
that when the main question has been settled, the question
of the seat of the bank will not remain for a long time a
subject of difference between the federal chambers, and
even if the referendum should be demanded we may
expect that the great majority of the Swiss people will say:
'We accept the proposal of the federal chambers and
assent to it, so as not to delay any longer the establishment
of the bank.' "
The Standerat approved the proposal of its commission, and the bill that came from this chamber consequently contained the clause, "The National Bank has its
central seat at
," the Standerat being of the
opinion that after an agreement had been reached upon
the bill as a whole it would again have the priority
in the designation of the seat of the bank.
The question of the admissability of this procedure •,
which was discussed in the Nationalrat, need not be
considered here. As regards the subject itself, a number of views were expressed in the Nationalrat. A
minority of the commission of the Nationalrat recommended assent to the conclusion arrived at by the
Standerat; the majority desired to restore the wording of
the Bundesrat's bill, but with the modification that the
seat of the bank should not be determined by a special
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resolution of the federal legislature, but by a federal act
subject to the referendum. During the debate a third
proposal was made by Nationalrat Zoller, who moved
that "the seat of the National Bank be determined, after
a report by the Bundesrat, by a secret joint ballot of the
two chambers of the Bundesversammlung."
Neither the proposal of the Bundesrat and of the
minority of its own commission nor the proposal of
Zoller was adopted by the Nationalrat. Their rejection was to be ascribed chiefly to two reasons.
In the first place, there was a reason of a tactical
nature. The Bundesrat's proposal was based on the
assumption that when the law itself has been passed by
the chambers and approved by the people the question
of the seat would be settled in an amicable spirit. The
character of the debates and the passion that had been
manifested even in the preliminary consideration of this
point seemed to confirm the fear that this expectation
might not be realized; on the contrary, that the distrust
on both sides might seriously endanger the bill in the
event of a referendum.
The second reason was based on principle. The view
that the fixing of the seat of the bank was really an essential part of the law, which was strongly supported in the
Nationalrat by Herr Paul Speiser, appears to have
gradually gained the upper hand. With special pertinency it was pointed out that the character of the compromise arrived at would be affected by the selection of
the seat of the bank. "Shall we," said Herr Speiser,
"establish the bank which we are now creating on the
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basis of a compromise at the chief seat of the federal administration or at a place where it would be entirely independent of the federal administration—at one of our great
banking centers ? I purposely put the question not in a personal way but as a question of principle, and I therefore say:
'At one of the banking centers/ The character of the
bank will differ according as its chief seat is at Berne,
the seat of the federal administration, or at one of the
great banking centers, let us say Basle, Geneva, Zurich.
This question, which is highly important, must be solved
now, in order that it may be made clear whether the
future National Bank will bear more of an official or
more of a private character. * * * The influences—
I do not in the least mean improper influences, but the
personal influences affecting the business manager—are
entirely different in the one place from what they are in
the other. * * * We have concluded a compromise
under which we seek to establish a private bank with a
state character, or, as we may equally well say, a state
joint stock bank with a private character—it is not easy
to find a perfect designation, but at all events it is a
delicate compromise, which has been very carefully
planned. Shall we give greater influence to private individuals or to the Confederation? Everything has been
very cleverly contrived; only the question remains to be
answered: 'Where shall the bank be placed?' Shall it
be ' federal administration oil' or ' high finance oil' that
is to flow to the new bank? This depends upon your
decision on the bank seat question. It is certain that
so long as we do not know the central seat of the bank
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we shall not be clear as to the character of the future
National Bank. This is not a side matter; no, the
human element—and that is what is here in question—
never has been and never will be a side matter/'
Although the question of the seat of the bank was,
therefore, taken up in the law, the chambers were nevertheless relieved of the task of passing judgment on the
relative weight of the claims put forward by the two
rival cities and choosing between them. After protracted
negotiations between the representatives of Berne and
those of Zurich in the Nationalrat, it was found possible
to settle this dispute also by a compromise, for which a
model was furnished in the organization of the''Credit
Lyonnais " or of the " Darmstadter Bank" (Bank fur Handel und Industrie) and which was urged by Nationalrat
Stoffel.
The compromise, which was first brought before the
Nationalrat in the form of a motion by the commission,
consists in a division of the seat between Zurich and
Berne. The administrative and legal seat of the bank
was to be at Berne, while the Direktorium was to be located
at Zurich. The compromise rests on the idea that everything that concerns supervision and control should be
concentrated at Berne, viz: The general meetings of the
shareholders, the sittings of the bank council, and, as a
rule, also the meetings of the bank committee. The
business management of the bank, on the other hand,
should be located at Zurich, and it is there that the
meetings of the Direktorium should be held. This
Direktorium was divided into three departments, of
which two, namely, the department for the discount and
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transfer business and the department of control, or the
heads of these departments, were to be at Zurich, while
the head of the third department, which was to have
charge of the issue of bank notes, the management of
the cash in hand and the transaction of business with
the Confederation, was to be located at Berne. The
branch offices for Zurich and Berne were to have their
own local managements, so that the Direktorium (or
board of management) of the National Bank, to which
the Bundesrat's bill had assigned the conduct of the branch
bank at its seat, was no longer intrusted with the direct
management of any branch institution. A further point
of the compromise, which, however, did not appear in the
printed text of the law, consisted in the understanding
that of the two directors residing at Zurich one should
also be the president of the Direktorium.
This compromise plan of the commission was accepted
by the Nationalrat, and in September, 1905, by the
Standerat also.
3 . BRANCH OFFICES AND AGENCIES.

The changes made by the Bundesversammlung in the
Bundesrat's bill in regard to branches and agencies had
their origin in the desire to conserve the interests of the
cantonal banks as far as possible.
Seeing that the rejection of the first bank bill had been
brought about in large measure by the fear that the central bank of issue would interfere with the prosperity of
the cantonal banks, the interests of those banks were
taken into the fullest consideration in the later bills, and
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this by way of restricting the sphere of business activity
of the National Bank. This restriction, accordingly, was
a feature of the last bill; and the tendency to further limitation was also shown in the resolution (passed first by
the Standerat and then by the Nationalrat) by which, in
the fundamental statement of the functions of the bank—
regulation of the circulation, facilitation of payments,
and care for the utilization of available capital—taken
over in the Bundesrat's bill from the German bank law,
the last-named function was struck out.
The representatives of the interests of the cantonal
banks demanded, however, in addition to the positive
limitations of the competitive powers of the National
Bank, a special guarantee against undesirable local
competition. Standerat Python made known these
wishes. He urged that if the law did not designate the
places at which the National Bank was to be at liberty to
establish branches it should at least guarantee that no
branch would be established against the expressed will of
the cantonal government concerned, and furthermore that
in the establishment of agencies of the National Bank the
cantonal banks would be given preference.
To both demands the Chambers acceded by recasting
the article of the bill in question. An account of the
details of these provisions will be given to better advantage in connection with the account of the entire law.
4. DISTRIBUTION OF THE NET PROFITS.

The alterations considered by the Bundesversammlung in
the mode of distributing the net profits proposed by the
83700—10

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Bundesrat was due to the motives we have already treated—
the desire to grant to the private capital as small a share
as possible in the proceeds of the bank and the desire to
increase the payments of the banks to the Cantons as much
as possible.
The proposal of the Bundesrat provided that next after
the transfer of 10 per cent of the net profits to the surplus
there should be paid a dividend of 4 per cent on the share
capital. After this the indemnities due the Cantons were
to be paid, an additional dividend of at most y£ per cent on
the capital was to be distributed, and the remainder was
to be divided between the Confederation and the Cantons , one-third going to the former and two-thirds to the
latter.
The resolution of the Standerat providing that; the whole
of this remainder go to the Cantons was not adopted by
the Nationalrat; the Confederation therefore remains
entitled to one-third of this remainder of the net profits of
the National Bank.
On the other hand the proposal that the additional dividend be struck out, originally moved by the minority of
the Standerat's commission, was accepted by both chambers. It was held that it was not right to guarantee to
private capital for its participation a rate of interest which
was higher than that customary in the country, and that
the proceeds of the bank should go to the public without
unnecessary curtailment.
The effect of striking out the additional dividend of the
shareholders is of course to make a corresponding increase
in the amount to be divided between the Confederation
and the Cantons.
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5 . INDEMNIFICATION OF T H E CANTONS.

T h e plan of compensation for t h e Cantons proposed b y
t h e Bundesrat on t h e basis of t h e calculation given in t h e
report on t h e Bundesrat's bill was declared b y t h e Federal
Assembly t o be acceptable in general and advantageous
for t h e Cantons. I n particular t h e plan of t h e Federal
Council to consider t h e amounts of note issue as a factor
to be taken into account in reckoning t h e indemnity
amounts only during a transition period met with almost
unanimous approval; especially because the receipts of
t h e Cantons a n d t h e cantonal banks from their note business were b y no means guaranteed, but, on the contrary,
for nearly twenty-five years there h a d existed legislative
provisions according to which compensation for t h e withdrawal of this privilege was excluded.
Of t h e small Cantons with highly developed trade, for
which t h e indemnity calculated on t h e basis proposed
b y t h e Bundesrat would mean a financial disadvantage
as compared with t h e revenues hitherto received, only
t h e Canton of Basle-City attempted through its representatives in t h e Bundesversammlung to bring about a
change in t h e proposed method of indemnification.
Herr Scherrer spoke on behalf of his Canton in t h e
Standerat and Herr Mueri in the Nationalrat, b u t without result in either chamber. The rejection of t h e Basle
propositions was unavoidable if t h e large Cantons with
comparatively small business activity were not to be
placed at a disadvantage, which in t u r n would have
handicapped t h e chances of the bill passing. The proposal of Basle was t o give greater consideration t o t h e
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factor of note issue, or to give t h a t consideration for a
longer period.
The proposal of the Bundesrat was, however, modified
in two points.
Under t h e Bundesrat's plan the Cantons were to receive
an indemnity equal to 50 centimes for every 100 francs
of their authorized issues on the 31st of December, 1902,
and a further indemnity equal to 25 centimes per head
of the population. Beginning with the sixth business
year of the bank, the rate payable upon the issue figures
was to be reduced b y 5 centimes annually, b u t on t h e
other hand the indemnity based upon the number of
inhabitants was to be increased by the same amount.
In fifteen years t h e former kind of compensation would
disappear entirely and the indemnity would then be
calculated uniformly at the rate of 75 centimes per head
of the population of every Canton. The Standerat, in
pursuance of a petition from the cantonal finance directors, raised the rate per head from 25 to 30 centimes.
This alteration was approved by the Nationalrat, which
body also replaced the figures of the 31st of December,
1902 (as it h a d done in the case of the distribution of t h e
capital), by those of December 31,1904; and t h e S t a n d e r a t
concurred. As a result of these modifications t h e indemnity payable t o the Cantons was increased from t h e first
year by 5 centimes per head of the population, and after
fifteen years the rate is 80 centimes per head.
Let us now ascertain the total amount t h a t will flow
into the cantonal treasuries, in the new order of things,
under the various heads. The calculations will relate to
the fourth business year of the bank, this being t h e first
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year of the actual exercise of the banknote monopoly,
after t h e complete retirement of t h e old notes. In accordance with the estimate of the Bundesrat we shall
take t h e net profits of the Bank to be 4,000,000 francs.
The first item of revenue t h a t will go into t h e cantonal
treasuries is the difference between the rate of dividend
they receive upon their investment in National Bank
shares (4 per cent) and the rate of interest at which they
can obtain t h e necessary funds for t h a t purpose (say 3 ^
per cent). As 20,000,000 francs of the capital of the
National Bank is to be allotted t o t h e Cantons and moreover at least half of the 10,000,000 francs reserved for
banks of issue will fall to the cantonal banks, the entire
amount of b a n k shares t h a t will then be held by the
Cantons is 25,000,000 francs, half of which is paid up,
and the above-mentioned difference of one-half per cent
on 12,500,000 francs will go into the cantonal treasuries.
The second item of the cantonal revenue is the direct
indemnity. In the fourth business year of the National
Bank this will amount to 2,202,173 francs, taking into
account the increase of the per capita rate from 25 t o 30
centimes.
The third source of revenue is found in the share of t h e
cantons in the net profits. On the basis of t h e Bundesrat's estimate and of the foregoing figures, the amount of
this may be computed as follows:
Francs.

Net profits (see p. 151)

4, 000, 000
Francs.

10 per cent to go to surplus
4 per cent dividend on 25,000,000 francs
Indemnity to the cantons

400, 000
1, 000, 000
2, 202, 173
3,602,173

Balance available for distribution
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Of this amount the Cantons receive two-thirds—that is,
265,218 francs.
If we now put together these cantonal revenues, we have
for the fourth business year:
Francs.

One-half per cent difference on 12,500,000 francs share capital-_
62, 500
Indemnity
2, 202, 173
Share in the net profits
265, 218
2,529,891

This sum is, consequently, already in the fourth business
year of the bank considerably higher than the estimated
loss to the Cantons, as given in the report of reasons accompanying the Bundesrat's bill. The total revenue will, of
course, increase from year to year. At all events, it may
be assumed that it will be impossible to bring forward in
good faith as against the National Bank any claim of loss
suffered by the Cantons.
6.

LIQUIDATION.

The last alteration which we shall discuss here relates
to the treatment of the surplus in the event of a liquidation
at the expiration of the bank's privilege, or the nationalization of the bank, i. e., the redemption of the private capital.
The Bundesrat's bill provided that in such an event twothirds of the surplus shall be handed over to the shareholders, while the remaining one-third shall become the
property of the Confederation; this is in agreement with
article 41, paragraph 2, of the German Bank Act. The
Standerat altered this proposal to the effect that one-third
of the surplus was to go to the Confederation, one-third to
the Cantons, and one-third to the shareholders. This
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standing t h a t any profit t h a t remained after repayment
of t h e share capital at its face value and a dividend a t t h e
rate of 4 per cent for t h e time of the liquidation was to
become t h e property of t h e new federal bank.
The other alterations made by t h e Bundesversammlung
in the Bundesrat's bill—for example, the provision t h a t
members of cantonal governments shall not be permitted
t o belong to t h e direktorium, t h a t the power of acquiring
existing banks of issue, which t h e Bundesrat had vested
in t h e b a n k council, shall belong t o t h e general meeting of
t h e shareholders, etc.—do not call for detailed consideration.
SECTION III.—LEGAL CONTENT OF THE ACT.
I n t h e following account of t h e law its provisions will
be grouped under four heads: (1) Legal and financial
basis of t h e federal b a n k ; (2) its sphere of activity; (3)
organization and administration; (4) transitional dispositions. I n view of the fact t h a t t h e wording of t h e law
itself is reproduced in t h e appendix t h e following account
m a y be m a d e very brief. Only in t h e description of t h e
organization and administration has a more detailed
account appeared to be desirable, as the organization
really gives t h e b a n k its character, and the preponderance
of t h e state interests as against those of the private capital
participating in t h e foundation of the b a n k is most manifest in this organization.
I. LEGAL AND FINANCIAL BASIS.
i . Legal basis.—The federal act of October 6, 1905, creates a " Swiss National B a n k , " which is endowed with t h e
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rights of a legal person and which is, consequently, as
regards property rights, entirely separate from the Federal
Treasury. Its constitution is determined by the provisions of the act itself and by regulations to be approved by
the Bundesrat; the provisions of article 26 of the Civil
Code, relating to the organization and administration of
joint stock companies, apply to the National Bank only
in so far as they are not in conflict with the provisions of
the bank act.
2. Financial foundation,-—The capital of the National
Bank consists of 50,000,000 francs, divided into 100,000
shares of 500 francs each, which are registered in the
names of the owners. This capital must be entirely
subscribed, and half of it paid up, when the bank commences its operations. No minimum dividend is guaranteed, but, on the other hand, the dividend is limited to
a maximum of 4 per cent.,
Two-fifths of the share capital will be reserved for subscription by the Cantons in proportion to their population. In the event of the Cantons not making full use
of their right to subscribe, the cantonal banks have a claim
to the assignment of the shares not subscribed for.
One-fifth of the share capital is reserved for banks exercising the right of note issue under the law of March 8,
1881, in the ratio of the amounts of their authorized
issues on December 31, 1904.
The remaining two-fifths of the share capital and any
shares assigned to the Cantons and cantonal banks that
may not have been taken up by them shall be offered
for public subscription.
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Only Swiss citizens, or such firms and legal persons or
corporations as have their chief domicile in Switzerland,
are allowed to subscribe. The same qualification is
necessary for entry, as owner, on the share register.
Persons whose names do not appear on the share register
are not recognized by the National Bank as shareholders,
even if they are in possession of shares.
In the allotment of shares small subscriptions are to
be given the first consideration, and every subscriber
shall receive at least one share.
3. Bank-note monopoly and resulting obligations.—The
Confederation confers upon the Swiss National Bank, for
a period of twenty years in the first instance, the sole
right of issuing bank notes, which privilege belongs to
the Confederation exclusively according to article 39 of
the federal constitution. In return for the grant of this
monopoly the National Bank undertakes to fulfill the
duties assigned to it by the law, and further, by way of
concession tax, to make an annual payment to the Confederation, which, in turn, is obliged to distribute the
amount of this payment to the Cantons. The mode of
calculating this amount is set down in article 28 of the
law (see pp. 180, 213); after the expiration of a fifteen
years' transition period it will be 80 centimes per head of
the Swiss population, as fixed by the last census taken.
The concession tax represents the return, fixed in
advance, which is to be given by the National Bank for
the bank-note monopoly transferred to it by the State;
and a further consideration for the granting of this monopoly is to be found in the cooperation and supervision
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of the Confederation provided for in the constitution of
the bank and in the participation of the Confederation
and the Cantons in the net profits.
4. Share in the net profits.—As regards participation in
the net profits, the law lays down the following rules: Of
the annual earnings shown in the profit and loss account,
10 per cent—but in no case more than 500,000 francs—
shall be transferred to surplus, until the surplus shall
have reached a total equal to 30 per cent of the bank's
share capital. Next, a dividend of 4 per cent on the share
capital is to be paid out. After this the cantonal indemnity is to be handed over as a concession tax to the Confederation. Of any remaining net profits two-thirds go to
the Cantons and one-third to the Confederation, in accordance with article 39, section 4.
The entire amount of the concession tax, which is payable to the Cantons as indemnity, is guaranteed to the
Cantons by the Confederation. In the event of the
annual earnings of the bank not being sufficient, after provision for surplus and distribution of dividend, to cover
the concession tax, the amount of the deficit, will be
advanced by the federal treasury. Such advances must
be repaid to the treasury by the bank, with interest at the
rate of 3 ^ percent, as soon as its net profits make this
possible. This reimbursement must be made in the years
next following, before the distribution of the net profit
remaining after payment of the concession tax.
5. The cooperation and control of the Confederation are
embodied in the selection of the bank authorities by the
Bundesrat; in the subjection of the regulations, the balance
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sheets, and the annual reports of the bank to the approval
of the Bundesrat; in the provision for reports by the
Bundesrat to the Bundesversammlung; and in the powers
of control granted to the Federal Department of Finance.
2 . S P H E R E OF BUSINESS ACTIVITY.

The function of the National Bank is to regulate the
monetary circulation of the country and to facilitate the
effecting of payments; its sphere of activity is consequently restricted to the business of a pure bank-note,
transfer, and discount bank. The law clearly provides
that the bank shall transact "only" such business as is
specified in the law itself; this provision was adopted for
the purpose of allaying the fears of the cantonal banks
that the National Bank might become a keen competitor;
but, as is the case with the German Reichsbank, it is
calculated to serve as a welcome support to the directors
of the bank when confronted with the agitation of opposing interests.
The kinds of business which the National Bank is at
liberty to carry on are separately named in article 15 of
the law (see p. 209); it is consequently unnecessary to
repeat the list here. The following points, however, are
to be noted: (1) Unlike the French Bank Act, the Swiss
Bank Act does not absolutely require a third signature
upon the home and foreign bills to be discounted by the
national bank; (2) in accordance with a petition of the
Bauernbund, a provision was incorporated in the law to
the effect that "bills arising out of agricultural business,
if based upon a genuine business operation," shall be put
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on an equal footing with other bills; (3), foreign bills and
checks may be bought only if they are drawn upon
countries having a metallic basis for their currency syst e m ; (4) shares can not be taken as collateral for loans
(a prohibition t h a t applies likewise to the German Reichsb a n k ) ; (5) aside from its dealings with the Confederation
and with administrations under the supervision of
t h e Confederation, the National Bank is not permitted to
receive deposits on interest; (6) the purchase of securities
(and these only government loans) can not be resorted to
for the permanent b u t only t h e temporary investment of
the moneys of t h e National Bank; (7) t h e National Bank
is not allowed to participate in the permanent taking over
of loans of the Confederation or the Cantons; (8) the
National Bank is obliged to receive at all its branch
offices payments for the account of t h e Confederation and
of its administrations, and must likewise effect payments
on behalf of the Confederation u p to the amount standing
to the credit of the Confederation; and upon request by
the federal authorities t h e bank is also obliged to accept
for safe-keeping or management securities and other
articles of value belonging to the State, free of an}? charge.
The issue of b a n k notes by t h e National Bank is not
limited to any m a x i m u m sum, and no t a x is levied either
upon the note circulation as a whole, as in the law of
March 8, 1881, or upon the uncovered circulation or upon
the amount of the uncovered circulation in excess of a certain limit, as is t h e case in the German Bank Act. The
National Bank is thus placed in a position to increase or
reduce the issue of bank notes without regard to any coniSS

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siderations other than those relating to the requirements
of business.
Bank notes are to be issued in denominations of 50, 100,
500, and 1,000 francs. The issue of 20-franc notes may, in
extraordinary cases, be temporarily permitted by the
Bundesrat. The manufacture, delivery, withdrawal, and
destruction of the bank notes is to be under the control of
the Federal Finance Department.
Unconditional and immediate redemption of its notes,
in legal tender, in unlimited quantity, is required of the
National Bank at its seat at Berne only; at all other branch
offices and agencies immediate redemption is required
only so far as the cash holdings of the branch or agency
and its own need of cash permit; but in no case shall there
be more delay in redemption than is necessary for obtaining the cash from the central office.
Contrary to the terms of the Eglish Bank Act and in
accordance with article 39 of the federal constitution, the
notes of the Swiss National Bank, like those of the German Reichsbank, are not given the quality of legal tender.
With the exception of times of war, only the National Bank
itself and the public offices of the federal treasury are
obliged to accept these notes at all times at their face value.
The requirements of the national-bank act concerning
the cover for the notes go far beyond those of the law of
March 8, 1881, and place obligations upon the National
Bank to which neither the banks organized under that law
nor institutions such as, for instance, the Bank of England,
or the German Reichsbank, were subjected, for while in
the case of all those banks the law regulates only the
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manner of covering the notes, the national-bank act prescribes not only this, but also the manner of covering
short-time liabilities.
The metallic cover for the notes must amount to at least
40 per cent of the circulation and shall consist of legal
tender, gold in bars, or foreign gold coins. For the remaining 60 per cent not covered by metal there must be a cover
consisting either of Swiss discount bills or foreign bills.
In addition to the foregoing the National Bank is
obliged to keep all short-time liabilities (i. e., liabilities
falling due or demandable within ten days) covered by
their equivalent in legal tender, gold bars or foreign gold
coins, Swiss discount bills or foreign bills.
3 . ADMINISTRATIVE

ORGANIZATION.

i. Seatj branch officesy and agencies.—Unlike the great
central banks of issue of foreign countries, as, for instance,
the German Reichsbank or the Bank of France, the Swiss
National Bank has no actual central seat; there exist
only seats of the various bank authorities. Neither the
Zurich nor the Berne office is under the immediate management of the Direktorium of the National Bank; those
offices have, like all the other branch offices, their own
management; unlike the German Reischbank,for instance,
according to the constitution of which the main bank in
Berlin is under the immediate management of the Reichsbankdirektorium. Among the branch offices there is no
distinction of chief office and subordinate offices; they are
all coordinate and have the same degree of independence;
and these branch offices, grouped together under a uni190

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form management and control, constitute the National
Bank.
The legal and administrative seat of the National Bank
is at Berne. The general meetings of the shareholders,
the sittings of the bank council, and as a rule also the
meetings of the bank committee, take place at Berne.
The seat of the board of management (Direktorium) of
the National Bank is at Zurich.
The National Bank is empowered to create, apart from
the branch offices at Berne and Zurich, branch offices in
the more important business places of Switzerland, but
the sanction of the respective cantonal governments
must have been previously obtained. Prior to starting
operations the National Bank must have organized at
least four branch offices.
The National Bank is authorized to acquire, by private
treaty, such existing banks as carry on business similar to
its own (consequently chiefly existing banks of issue) and,
after the liquidation of such business as is inappropriate
for the National Bank, to continue them as branch offices.
The Canton in whose territory a bank thus acquired is
situated has the right of preemption of the National Bank
shares held by such bank.
The National Bank is authorized to establish agencies
in places where no branch offices have been instituted.
Every Canton or half-Canton in whose territory no
branch office has been established, has the right to ask
for the establishment of an agency within its boundaries.
The cantonal bank is to be made an agency if the cantonal
government so requests.
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Co m m i s s to n

Any difference of opinion that may arise between the
National Bank and the cantonal governments on the question of the establishment of branch offices or agencies is
to be referred for decision to the Bundesrat, without
appeal.
The law contemplates the creation of the following bank
authorities: The general meeting of the shareholders; the
bank council; the bank committee; the local committees,
and the audit commission as organs of supervision and
control; the board of management (Direktorium) and the
local managements (Direktionen) as executive organs.
2. The general meeting of the shareholders.—At the general meeting, which must be held at least once a year and
not later than in the month of April, and which is convoked and presided over by the president of the bank
council, every share entitles the holder to one vote, but a
single private shareholder shall not be entitled to more
than 100 votes in all. At a general meeting, the presence
of at least 30 shareholders, representing in all at least
10,000 shares, is necessary to make it competent to act.
In the event of no quorum being present at the general
meeting, the following extraordinary general meeting,
which shall be convoked immediately after the failure of
the first meeting, shall be deemed competent to act, quite
irrespective of the number of shareholders present or the
total number of shares represented by them. So far as
consistent with the provisions of the Civil Code and any
further principles established by the act, the action of
the general meeting is determined by an absolute majority
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of the share-votes present; the tellers are chosen by t h e
general meeting. Extraordinary general meetings m u s t
be convoked when called for by resolution of a general
meeting or whenever shareholders whose shares aggregate
at least one-tenth of the entire capital request it, stating
the object of the meeting. The order of the day of t h e
general meeting is binding on its deliberations; on subjects not included in the order of the day, with t h e exception of motions for the calling of an extraordinary general
meeting, no action can be taken.
The powers vested in t h e general meeting are of a very
limited character. The meeting receives t h e annual
report and t h e balance sheet and decides on t h e division
of the net profits, in accordance with the rules laid down
in the act. I t has t h e right—-and this is the most important power it has and the only means by which it can influence the management of the bank's business—to select 15
members of the bank council. I t elects the audit commission; it decides, subject to the approval of t h e Bundesversammlung, on t h e acquisition of existing banks by t h e
National Bank and on t h e increase of the capital of t h e
bank. I t decides on the renewal or dissolution of t h e comp a n y and on such questions as may be laid before it by
t h e bank council. Finally, it may lay before t h e Bundesr a t proposals for t h e modification of the bank law. For
general meetings in which such proposals are to be considered or which are to deal with the question of t h e
renewal or dissolution of the company, there are special
rules as to the constitution of a quorum and of an effective
majority.
83700—10

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C omm i s s i o n

In the organization of the general meeting, as described
above, two principles accepted by the legislative authorities in the elaboration of the bank's constitution are manifest. The first is that in regard to their rights all shareholders without distinction stand on the same level, quite
irrespective of the question whether they are Cantons,,
former banks of issue, or private individuals. The second
is that of the limitation of the powers of the general meeting to a minimum.
3. The bank council.—Much greater powers than those
assigned to the general meeting are conferred upon the
bank council, which is charged with the general supervision of the course of the business, and the conduct of the
business, of the National Bank. The bank council is composed of 40 members, of whom 15 are elected by the general meeting and 25 by the Bundesrat, all for the period of
one year. Among the 25 members appointed by the Bundesrat shall be the president and the vice-president of the
bank council. Of the remaining 23 members only 5 may
belong to the Bundesversammlung and only 5 to the cantonial governments, and in the choice of them special consideration must be paid to a proper representation of the
centers of banking, industry, and trade. The members of
the bank council must be Swiss citizens resident in Switzerland.
The bank council must meet at least once every quarter.
Extraordinary meetings may be called by the president at
any time, and must be called upon the request of 10 members.
The bank council elects 5 members of the bank committee. It nominates the local committees and submits
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proposals t o t h e Bundesrat respecting the choice of members of t h e direktorium, as well as the local managements.
These proposals are, however, not binding on the Bundesrat. The b a n k council examines and passes upon t h e necessary rules and regulations, annual reports, and balance
sheets, which are prepared conjointly by the direktorium
and t h e bank committee and which are subject to the approval of the Bundesrat. It also makes regulations
respecting the transfer of shares, and on the basis of proposals by t h e direktorium and t h e bank committee (which
proposals are not binding) fixes t h e salaries of all the officials and employees of the National Bank within maxim u m and minimum limits to be established by a regulation.
The motions to be p u t before the general meeting are to be
previously deliberated upon and p u t into form by the bank
council. Finally, any business transaction involving
more t h a n five million francs, and t h e fixing of any credit
limit beyond three million francs, must be referred t o t h e
bank council for decision or determination.
In t h e case of any decision or determination t h e subjectm a t t e r of which involves an amount exceeding one-fifth
of t h e capital of t h e bank, and in the case of any decision
looking to t h e increase of an existing credit by which this
credit shall reach an aggregate exceeding one-fifth of t h e
capital of t h e bank, the affirmative vote of at least thirty
members of the B a n k r a t is required. In all other cases
an absolute majority is sufficient.
While t h e duties of t h e general meeting and t h e b a n k
council consist mainly in fulfilling certain formalities and
in t h e exercise of a periodical control of the m a n a g e m e n t
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of the bank, to which, in the case of the b a n k council
certain powers of election and administration are added,
the authorities we are now to consider are charged with
t h e actual management of the b a n k ; these are, for the
National Bank, the direktorium and the bank committee;
for the various branch institutions, the local managements
and the local committees.
4. The Direktorium.—The
direktorium, a board consisting of 3 members, is the actual managing and executive
authority. I t is elected, upon the (nonbinding) proposal
of the bank council, by the Bundesrat for a term of six
years, and the Bundesrat determines which of the members of the direktorium are to serve as its president and
vice-president.
The functions of the direktorium are divided between
three departments—the department of discount and
transfer [giro] business, the control department, and the
note-issue department. The two members of the direktorium who are at the head of the two departments first
named, and one of whom is the president of the board,
are located at Zurich; the head of the note-issue department, who has charge of the management of the cash
holdings and of the business transactions with the federal
authorities and federal railways, resides at Berne.
The direktorium has power to carry into effect the
aims and purposes of the National Bank by all acts t h a t
serve the realization of this object other t h a n those
reserved by the law either to the Bundesrat t h e general meeting, the bank council, or the bank committee;
the most important instance of such power is t h a t of fixing
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t h e rate of discount and the rate of interest upon loans on
collateral; before determining these rates, the direktorium
must obtain the opinion of the b a n k committee and the
views of the managers of the leading branch offices. The
direktorium appoints all officials and employees of the
central administration whose selection has not been
reserved either to the Bundesrat or to the b a n k committee. For the choice of officials whose appointments
rest with the b a n k committee, the direktorium has the
right to make proposals, which are, however, not binding
on the b a n k committee.
5. The local managements are immediately under the
direktorium. Every local management is composed of a
manager and a submanager, who are appointed for a
period of six years by the Bundesrat, upon (nonbinding)
proposal of the bank council and after ascertainment of
the views of the respective local committees. These
officials are responsible for the business management of
the branch offices entrusted to them.
All the rest of the organization of officials is under the
direktorium or the local managements. The powers of
the various authorities and their relationship to one
another, and also the minima and maxima of the salaries,
are laid down in special rules and regulations, which are
drawn u p by the bank council, subject to approval by t h e
Bundesrat. The fixing of the minimum and m a x i m u m
salaries requires the approval of the Bundesversammlung.
All officials and employees of the National Bank who
receive a fixed salary are considered federal officials, and
as such they are subject t o the provisions of the federal
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legislation respecting the obligations of the federal authorities and federal officials. In respect to the method of
their appointment, they fall into the following groups:
(a) The members of the direktorium, the submanagers
assigned to the direktorium, the managers and submanagers
of the local managements are chosen by the Bundesrat
upon the proposal (not binding) of the bank council
(6) Officials and employees of the central administration
whose salary is above 4,000 francs per annum are chosen
by the bank committee. For all these posts the direktorium has the right to propose nominations (not binding).
As regards the election of officials for the branch offices,
the same right of making proposals belongs to the local
managements and local committees. If the proposals of
the direktorium, the local management, and the local committee relating to the appointment of any official of a branch
office all agree they become binding on the bank committee.
(c) Officials and employees of the central administration whose salary does not exceed 4,000 francs are chosen
by the direktorium.
(d) Officials and employees of the branch offices whose
salary does not exceed 4,000 francs are chosen by the local
management.
All officials and employees of the National Bank, including the members of the direktorium and of the local
managements, may be deprived of their positions by the
appointing authority, the cause of the removal being
stated.

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The effectiveness of the body of officials in t h e direktorium and the local managements employed at fixed
salaries and, unlike w h a t is t h e case in t h e German Reichsbank, receiving no percentage compensation of any kind,
is supplemented by means of the bank committee and the
local committees. These supply a supervision of t h e bank
b y representatives of t h e parties in interest a n d of t h e
general public, through which a g u a r a n t y is afforded to
t h e b a n k ' s creditors, and which constitutes a safeguard
against t h e possibility of making use of t h e hierarchical
organization of the bank management for secret purposes.
Moreover, by this means the bank officials are kept in cons t a n t touch with the representatives of the commercial and
industrial world, so t h a t the rise of a purely bureaucratic
bank management is prevented, to the advantage of the
bank's customers.
6. The bank committee.—While t h e bank council exercises
only periodical control of the bank and certain other
powers of no great importance assigned to it b y t h e law,
t h e continuous and specific control and supervision of
t h e management of t h e bank devolves upon a standing
committee of the bank council, designated as t h e bank
committee.
The bank committee is composed of the president and
vice-president of t h e bank council, who also exercise the
functions of president and vice-president of t h e bank committee, and of 5 other members who are elected by the
bank council for a term of four years. The b a n k council
also elects 3 substitutes.

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I n addition to the general "supervision and c o n t r o l " of
t h e management of the bank delegated to it, t h e bank committee exercises t h e powers of election already mentioned
a n d also has special duties. I t must consider, in advance
of action by the bank council, all matters of business t h a t
are to come before t h a t body and any proposition made by
t h e direktorium for a change of the rate of discount or of
t h e rate of interest upon loans on collateral. Business
transactions and determinations of credit limits which
involve a sum in excess of i .000,000 francs are to be laid
by t h e board of management before the bank committee
for its approval, if they do not require the approval of t h e
b a n k council. The bank committee also grants the power
of attorney to officials to sign in the name of the National
Bank. In the case of officials of t h e central administration, this is done upon the proposal of the direktorium,
which proposals are, however, not binding; in t h e case of
officials engaged in branch offices, upon an understanding with the local management and the local committee.
7. The local committees.—As the bank committee is
placed alongside the direktorium, so there is placed
alongside the local management of each branch institution a local committee. According to t h e importance
of t h e place in question, such committee is composed of
3 or 4 persons, chosen by preference from among t h e
important merchants and manufacturers of the place and
its neighborhood. They are elected by the bank council
for a term of four years.
In addition to the above-mentioned rights of proposing
names for election, the " super vision" of the branch

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institutions is assigned to the local committees, which
meet at such times as may be necessary.
8. Supervision.—In
addition to the supervision exercised b y t h e b a n k council, the b a n k committee, and the
local committee, there exist two further organs of supervision for the National Bank—the audit commission and
the supervising officers of the Bundesrat.
(a) The audit commission is a supervisory organ of the
general meeting. I t consists of 3 members and 3 d e p u t y
members, who are annually chosen by the general meeting ; it is empowered to examine t h e entire working of t h e
National Bank a t any time; it is obliged to examine t h e
annual balance sheet and to report t o the general meeting
the result of this examination, which is also to be communicated to the Bundesrat.
(b) The supervising officers of the Bundesrat are named
b)' it and are subordinate to t h e Federal Finance Department. They are responsible to the Bundesrat, and their
functions of supervision are designed t o supplement those
performed by t h e audit commission, which is responsible
to the general meetings. While the m a n d a t e of the audit
commission includes principally the supervision of the management of business, the attention of those charged with
supervisory functions by the Confederation is to be fixed
upon the administration of the bank as a whole, upon the
relations of its various organs to each other, and upon
the economic interests of the nation, especially those connected with the currency. The law gives the Bundesrat
a free h a n d as to the actual organization of these supervisory agencies. I t m a y develop the board of note-bank
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inspectors, which was created under the law of March 8,
1881, into a board of inspection of the National Bank,
either giving it powers of supervision to be exercised in
regard to this institution in the same way as they have
been hitherto exercised in regard to the existing banks
of issue or conferring upon it more extensive powers of
representation, supervision, and prohibition.
4 . TRANSITIONAL, DISPOSITIONS.

Of the transitional provisions of the law, which also
regulate t h e mode of proceeding as regards the organization of the National Bank (arts. 79-84, p . 232), we need,
at this place, only treat such as deal with t h e question of
how the liquidation of the issues made under the law
of March 8, 1881, is to take place.
According to t h e law of March 8, 1881, every bank
which complies with the regulations laid down in t h a t
law is entitled to apply to t h e Bundesrat for t h e authority
to issue bank notes, and the Bundesrat must grant this
request. From the day on which the national-bank law
goes into force t h e Bundesrat is empowered t o refuse
such applications.
On the day t h a t the National Bank is opened for business, the legal obligation arises for all the banks of issue
organized under t h e law of March 8, 1881, to withdraw all
their notes within the following three years, reckoned
from t h a t date. The banks are obliged, during this
period of three years, to surrender to the control authority
appointed by t h e Confederation, at the end of every
quarter, at least one-twelfth of their entire authorized
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m e n t of even those improvements of t h e present situation
which a mere revision of t h e law is capable of bringing
about."
This supposition did not prove to be wrong. During
the m a n y years of t h e fight for t h e execution of article 39
of the federal constitution it often looked as though a
revision of t h e act of 1881 would have been preferable
t o a reconstruction of t h e note-bank system on a centralized basis, and t h a t such a revision would a t least
have sufficed t o prevent the deficiencies a n d evils of t h e
Swiss bank-note system from resulting in downright
economic disaster.
The principle of t h e bank-note monopoly was established. The question of a state or private b a n k remained t o
be decided b y legislation. This question caused a passionate fight, which soon found its way into t h e political
camp. I n numberless pamphlets and newspaper articles the question was discussed. The great associations
representing various economic interests—the Gruetliverein, the Bauernbund, and t h e Swiss Handels- u n d
Industrieverein—took a very active p a r t in t h e agitation.
The Bundesrat itself a t first took t h e position of watching
events a n d offered an o p p o r t u n i t y t o t h e representatives
of t h e various views t o p u t forward their respective ideas.
Not less t h a n ten different proposals were submitted t o
t h e Bundesrat: (1) Proposals submitted b y advocates of
a pure state b a n k (introduced b y members of t h e Bundesversammlung); (2) observations and proposals b y H e r r
W. Speiser; (3) opinion b y Nationalrat Forrer; (4) suggestions made b y t h e board of inspectors of banks of issue;
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issue of notes, for the purpose of having them destroyed;
for any deficiency in this quota, cash must be handed over
to the National Bank. The National Bank, in its turn,
is obliged to assist the banks of issue in the liquidation
of their bank-note business, as far as possible, by granting
advances on securities.
Until the liquidation of this bank-note business is
entirely completed, the terms of the law of March 8, 1881,
remain in force for the banks of issue. Their notes will
also be accepted in payment by all the branch offices of
the National Bank during the three-year period set down
for their withdrawal, and the National Bank will arrange
for the redemption of such notes within three days, free
of charge.
At the expiration of the three-year withdrawal period
the National Bank accepts the obligation, on its owrn
behalf and on behalf of its legal successors, to cash any
of the notes of the banks of issue that may still be in circulation, within the following thirty years. In the case
of banks that have handed over to the National Bank the
cash equivalent of their outstanding bank notes prior to
the expiration of the three years the National Bank accepts
the above obligation from the day of receiving the cash
equivalent in question. At the expiration of the thirty
years above mentioned, the obligation of redeeming the
old notes ceases to exist and the cash equivalent of the
notes not presented for redemption goes to the federal
invalid fund.

203

APPENDIX

F E D E R A L L A W R E L A T I N G TO T H E S W I S S
N A T I O N A L BANK.
(October 6, 1905.)
tt

The Federal Assembly of the Swiss Confederation, in execution of the
revised article 39 of the federal constitution of May 29, 1874, and after
consideration of a message of the Federal Council & of June 13, 1904,
decrees:
•I.

GENERAL.

The Confederation assigns t h e exclusive
right of issuing bank notes to a central bank of issue to
be established in conformity with this present act under
the style of "Sehweizerische N a t i o n a l b a n k " ( " B a n q u e
Nationale Suisse,'' " Banca Nazionale Svizzera M ), endowed with the rights of a legal person and which will be
administered under its cooperation and control.
ART. 2. The chief function of the National Bank is t o
regulate the monetary circulation of the country and t o
facilitate t h e operations of payment. Furthermore, the
bank must t a k e over the exchequer business of t h e Confederation free of charge, so far as it may be called upon
to do so.
ARTICLE

ART. 3. The National Bank has its legal and administrative seat at Berne, where the general meetings of t h e
shareholders, the meetings of the b a n k council, and usually also those of the b a n k committee must be held.
b

0 Bundesversammlung.
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The seat of the direktorium is in Zurich.
The cities of Berne and Zurich are required each t o
place a t t h e disposal of the National Bank, without compensation, a suitable site for building t h e necessary offices,
or to make an equivalent money payment.
A R T . 4. The National Bank is authorized to establish
branches in Berne and in Zurich, and, after having obtained
the consent of the cantonal governments, to establish
branches also in the other important towns of Switzerland, and to create agencies for the remaining places. In
case of disagreement between a Canton and the National
Bank concerning the establishment of a branch or agency,
t h e Bundesrat decides the question without appeal.
Any Canton or half Canton t h a t has no branch m a y
request t h a t an agency be established in its territory.
At the request of the cantonal governments concerned,
the cantonal banks are to be made such agencies.
The National Bank is authorized to acquire, by way of
purchase b y private treaty, existing banks whose business
is of similar character, and, upon liquidation of such
p a r t of t h e business as m a y be unsuitable, to carry t h e m
on as branches.
A R T . 5. The capital of the National Bank is 50,000,000
francs, divided into 100,000 registered shares of 500 francs
each.
The share capital must be fully subscribed, and half of
it (25,000,000 francs) paid in, by the day of the opening
of t h e b a n k for business. The p a y m e n t of t h e remainder
m u s t follow a t a date to be made known by the administration of t h e b a n k six months in advance.
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Shareholders who are in arrears in their payments m u s t
pay interest at t h e rate of 6 per cent, and after the three
formal notices by registered letters required b y law
have been sent t h e m without result, t h e rights arising
from their subscriptions and from the payments already
m a d e may be declared forfeited.
In place of the shares thus canceled new shares will be
issued.
A R T . 6. The capital of t h e National Bank will be raised
as follows: Two-fifths will be reserved for subscription
by the Cantons, or in their stead t h e cantonal banks, in
proportion t o their population; one-fifth will be reserved
for subscription by t h e present banks of issue, in proportion to their actual issue of notes on t h e 31st of December,
1904.
In case of t h e absorption of a bank of issue by t h e
National Bank t h e Canton concerned will have a preference right to b u y t h e shares in t h e possession of the b a n k
of issue at the market price of t h e day.
The last two-fifths and any remainder of shares reserved
to the Cantons or banks of issue and not taken up will b e
offered for public subscription.
A R T . 7. The following are the conditions for the right
of subscription and subsequent possession of shares of t h e
National Bank.
Only Swiss citizens or such firms and legal persons or
corporations domiciled in Switzerland as have their principal domicile in Switzerland are allowed to subscribe for
shares or can subsequently be entered in t h e share register
as owners of shares.
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I n allotting the shares, the first to be considered are the
smaller subscribers, so t h a t each subscriber shall receive
a t least one share.
The same procedure is to be followed in the case of any
later increase of capital.
A R T . 8. The capital of t h e National Bank m a y be
increased by a resolution of t h e shareholders in general
meeting (art. 41, par. 4, and art. 42), b u t this resolution
requires t h e approval of t h e Bundesversammlung, which
must also determine how the new capital shall be raised.
A R T . 9. Transfer of shares of the National Bank is
effected by indorsement.
Every transfer requires t h e approval of the bank committee. If this approval is not unanimous, t h e m a t t e r
must be referred to the bank council for decision.
In case of approval, the bank committee causes the
transfer to be entered in the share register kept at t h e
seat of the National Bank in Berne, and to be marked on
t h e share certificate.
Upon t h e entry of the transfer of a share in t h e share
register, such transfer becomes legally binding as against
t h e National Bank, and all rights and obligations of t h e
former owner of t h e share pass over to t h e new purchaser.
A R T . 10. Only such persons as are entered in t h e share
register are recognized by t h e National Bank as shareholders ; in particular, only these persons have a right to
vote.
Only one holder is recognized for each share.
Should one share belong to several persons, they must
name a common representative.
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A R T . I I . The shares of t h e National Bank must bear
t h e signatures of t h e president of t h e b a n k council and of
t h e president of t h e direktorium in facsimile print, and,
furthermore, the written signature of the official who has
charge of the share register.
A R T . 12. Notices to t h e shareholders will be valid if
sent by registered letter to the address last entered in t h e
share register and published in the Schweizerische Handelsamtsblatt (Swiss Commercial Gazette).
For notifications within the meaning of articles 665
and 669 of the Civil Code, t h e Schweizerische Handelsamtsblatt is designated as the official organ of publication.
A single publication in the Schweizerische Handelsamtsblatt, without the sending of registered letters t o
the shareholders, is sufficient for notice of the p a y m e n t of
a dividend.
A R T . 13. The National Bank and its branches shall be
exempt from all taxes in the Cantons.
A reservation is made, however, for the provisions of
cantonal laws relating to transfer duties and also those
relating to s t a m p taxes on bills and other evidences of
indebtedness. Exemption from these last applies only
to instruments proceeding from the National Bank,
including receipts issued by it and bank drafts and checks
drawn upon it. (Arts. 830-837 of the Civil Code.)
A R T . 14. The provisions of chapter 26 of t h e Swiss
Civil Code relating to joint stock companies apply to the
National Bank in so far as special provisions for its
organization and administration are not contained in t h e
present act.

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II.

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B a n king

Law

S P H E R E OF O P E R A T I O N S OF T H E NATIONAL B A N K .

A R T . 15. The National Bank, as a pure note, transfer,
and discount bank, is allowed to transact only t h e following business:
(1) Issue of bank notes, according to the provisions of
this law.
(2) Discounting of bills on Switzerland maturing in
not more t h a n three months and bearing at least two
signatures of known solvency. Bills arising out of agricultural business which are based on a commercial transaction are to be placed on the same footing as other bills.
(3) Purchase and sale of bills and checks on foreign
countries t h e currency of which is on a metallic basis.
The bills must m a t u r e in not more t h a n three months
and must bear a t least two signatures of known solvency.
(4) Granting of loans bearing interest for not more t h a n
three months against deposit of securities and title deeds.
Shares are not accepted as security for loans.
(5) Acceptance of moneys upon deposit without interest, and in t h e case of the Confederation and of t h e administrations under its supervision also of deposits bearing
interest.
(6) Transfer and clearing business; issue and cashing
of drafts.
(7) Purchase of interest-bearing bonds of the Confederation, t h e Cantons, or foreign countries, vesting in t h e
holder and easily realizable; this, however, only for t h e
purpose of a temporary investment of moneys.
(8) Purchase and sale of precious metals in bars and
coin, for its own account and for account of third parties,
and the granting of loans on the same.
837 00— 1 o

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(9) Issue of gold and silver certificates.
(10) Acceptance of securities and valuables for safekeeping a n d management.
(11) Receiving of applications for loans of the Confederation and t h e Cantons, on commission; all participation in the permanent taking over of such loans being
forbidden to t h e bank.
A R T . 16. The National Bank is under obligation: (1)
Wherever it has branches to accept payments, free of
charge, for the Confederation or any of its administrations and also to make payments free for the same, to
the extent of the credit balance of the Confederation; (2)
as far as it m a y b e requested, to take over, for safe-keeping
or management, free of charge, securities and valuables belonging t o t h e Confederation or placed under its
management.
ART. 17. The National Bank must regularly make
known its rate of discount and of interest on loans. It
m u s t also publish an annual balance sheet and a weekly
statement of its assets and liabilities.
III.

I S S U E , R E D E M P T I O N , AND COVER OF B A N K N O T E S —
COVER O F OTHER S H O R T - T I M E L I A B I L I T I E S .

A R T . 18. The National Bank is authorized to issue
b a n k notes according to the needs of business and under
t h e conditions laid down in this law, the b a n k alone
bearing all responsibility for the notes.
The manufacture, delivery, withdrawal, and destruction
of bank notes is done under t h e control of the Federal
Department of Finance.
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A R T . 19. The notes are issued in denominations of 50,
100, 500, and 1,000 francs.
T h e Bundesrat may authorize temporarily, in extraordinary cases, the issue of 20-franc notes.
A R T . 20. The equivalent of the entire amount of notes
in circulation must be in possession of the b a n k in lawful
money or in gold bars calculated at the market value, or
in foreign gold coins, in Swiss discount bills, and drafts
on foreign countries.
The metallic reserve must amount to at least 40 per
cent of t h e notes in circulation; the bills must always bear
two signatures independent of each other.
A R T . 21. The National Bank is further obliged at all
times t o keep the equivalent of all short-time liabilities
covered in Swiss discount bills, in drafts on foreign countries, in lawful money, foreign gold coins, or gold bars.
Short-time liabilities are those which fall due or become
demand able within ten days.
A R T . 22. The National Bank is obliged t o redeem its
notes at par in lawful money: (a) At its seat in Berne, in
any quantity, immediately on presentation; (b) a t its
branches and agencies so far as the cash in hand and their
own requirements will permit, but in any case within t h e
time required to get the necessary cash from the head
office.
At the branches and agencies the service for t h e redemption of notes is to be arranged for according to t h e needs
of the place.
A R T . 23. The National Bank is obliged at all times t o
receive its own bank notes at par both in payment a n d
on deposit account.
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The federal treasury offices are also obliged to accept
the notes of the National Bank at par in payment.
A more extended legal obligation to accept the notes
of the National Bank can not be declared except in case
of necessity in time of war.
ART.- 24. The National Bank must redeem damaged
notes at par, if the owner of the note produces a portion
of it larger than one-half, or, in case he produces a smaller
part, if he furnishes proof that the other part of the note
has been destroyed.
The bank is not obliged to give compensation for
destroyed or lost bank notes.
ART. 25. Damaged or worn-out notes must not again
be put into circulation by the National Bank or by its
branches or agencies.
IV.

KEEPING

ACCOUNTS—NET

PROFITS—SURPLUS.

ART. 26. The accounts of the National Bank must be
submitted for approval to the Bundesrat before being
presented to the general meeting.
The accounts are closed at the end of each calendar
year.
The balance sheets must be made out according to the
principles of the Civil Code.
ART. 27. Of the profits shown by the profit and loss
account, 10 per cent, but in no case more than 500,000
francs for one year, is transferred to the surplus.
After this, a dividend up to 4 per cent of the paid-up
share capital is distributed.

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The remainder of the net profits is divided as follows:
(i) The Cantons receive the indemnity assigned to them
under article 28; (2) any excess still remaining is distributed, subject to the reservation of article 29, one-third
to the Confederation and two-thirds to the Cantons.
The distribution among the latter is made in proportion
to the population, according to the last census.
ART. 28. The yearly indemnity, which, according to
article 27, paragraph 3, the National Bank must pay to
the Confederation, to be handed over to the Cantons, is
as follows: (a) Fifty centimes per 100 francs of the authorized issue of notes in each Canton on the 31st of December,
1904; (b) 30 centimes per head of the resident popula
tion of each Canton, as stated in the last census.
During the three years' period allowed for the withdrawal of the old notes (art, 86 of this act) the indemnity
provided under letter a is not reckoned on the amount of
the note issue, but on the amount of the notes delivered
to the control authorities to be destroyed, and this only
from the time of delivery of the same. Deficiencies paid
in cash are reckoned the same as delivered notes. Only
at the end of the three-year withdrawal period does the
50 centimes per 100 francs become payable on the full
amounts of the former authorized issues.
With the sixth full business year of the National Bank,
i. e., the third working year after the close of the period
assigned for calling in the notes, an alteration in the calculation of the indemnity for the Cantons begins. The
quota based on the note issue is reduced yearly by 5 centimes and the quota based on the population is increased
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by 5 centimes, so that with the fifteenth full business
year the portion of the indemnity based on the note issue
disappears entirely. From the fifteenth year on only an
indemnity of 80 centimes per head of the population
remains to be paid to each Canton.
The definitive determination of the amount of indemnity due yearly to each Canton is made by the Bundesrat.
ART. 29. Should the profits of the National Bank in
one year not be sufficient to pay the full indemnity to the
Cantons, the deficiency must be supplied by the Federal
Treasury in the form of advances. Such advances by
the Confederation, together with interest at 3>^ per cent
per annum, must be repaid as soon as the net profits of
the bank permit. Until the claims of the Confederation
for advances are settled, the further distribution contemplated in article 27, paragraph 3, No. 2, can not take
place.
ART,. 30. To cover any possible loss in the capital, a
surplus is established and is added to until it amounts to
30 per cent of the capital.
The surplus forms part of the working capital of the
bank.
Should the surplus, after reaching its maximum of 30
per cent of the paid-in capital, be drawn upon to cover
losses, the process of adding to it must be resumed, and
continued until the surplus again amounts to 30 per cent
of the capital.

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V.

Banking

ORGANS OF T H E NATIONAL

Law
BANK.

A R T . 31. The organs of t h e National Bank are:
(a) For supervision and control:
The general meeting of t h e shareholders.
The bank council.
The bank committee.
The local committees.
The audit commission.
(h) For management:
The Direktorium.
The local managements (localdirectionen).
I . T H E VARIOUS ORGANS.

a. The general meeting of the shareholders.
A R T . 32. Every shareholder whose name is entered in
the share register has a right t o take part in t h e general
meeting, or to be represented b y another shareholder duly
empowered to act in his place.
All t h e shares registered in one person's n a m e must be
represented by one person only.
The form of authorization required for representation
by proxy must be prescribed by t h e bank council.
A R T . 33. The general meeting should be called at least
three weeks before t h e day of t h e meeting by t h e president of t h e bank council.
In cases regarded by him as urgent, he may reduce this
time to eight days.
The call m u s t contain the order of t h e day. The order
of the day m u s t include any proposals submitted t o t h e

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bank council in writing by at least 10 shareholders prior
to the issue of the call.
Subjects which do not figure in the order of the day can
not be acted upon at the meeting. This rule does not
apply, however, to proposals made in the general assembly itself looking to the calling of an extraordinary general assembly. For the making of proposals, and for
proceedings requiring no decision by vote, notice in the
order of the day is not required.
ART. 34. The chair at the general meeting is taken by
the president of the bank council, or, if he is prevented,
by the vice-president, or, in case of necessity, by some
other member of the bank committee designated by the
bank council.
The tellers are elected by the general meeting for the
duration of that meeting by an absolute majority of
those present and by an open vote. Members of the
bank council are not eligible as tellers.
The proceedings and resolutions of the general meeting
are authenticated by records which must be signed by
the chairman, the recording secretary, and the tellers.
Extracts from these records must be certified by the
president and another member of the bank council.
The recording secretary is appointed by the bank
council.
ART. 35. A list must be kept of all shareholders present or represented at the general meeting, giving their
names and addresses and the number of shares represented by them.
This list must be signed by the chairman, the recording
secretary, and the tellers.
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I n t h e case of any act for whose validity the law requires
the drawing u p of a legal document, a notary public must
be called in to p u t the document into proper form.
A R T . 36. Shareholders must apply for their cards of
admission to the general meeting at the branch ofifices
or agencies at least three days prior to the meeting. The
cards of admission are made out according t o t h e share
register.
A R T . 37. The general meeting is competent t o act as
soon as at least 30 shareholders are present, representing
in all at least 10,000 shares.
If the first call does not result in a general meeting
competent t o act, then a new general meeting m u s t be
called at once, which will be competent to act without
regard t o the number of shareholders present or t h e number of shares represented. Reservation is made of article
42 of this act.
A R T . 38. Each share gives the right to 1 vote, b u t
no private shareholder can have more t h a n 100 votes.
A R T . 39. With reservation of article 42 of t h e present
act, resolutions of the general meeting are passed b y an
absolute majority of the share votes represented. In
the case of a tie the chairman has t h e casting vote. In
general the voting is open, b u t it is by ballot if the chairm a n so orders or if 5 shareholders present propose it.
The members of the b a n k council to be named by the
general meeting and also t h e members of the audit commission and their substitutes are elected by secret ballot.
A R T . 40. The ordinary general meeting is held every
year, not later t h a n in t h e m o n t h of April, to receive t h e
yearly report and balance sheet and to determine upon
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t h e disposition of t h e net profits, in accordance with
articles 27 and 28.
The audit commission's written report must be read
before action is taken.
The acceptance of t h e accounts without reserve operates as a discharge for those entrusted with the management In regard t o their conduct of the business during
the period covered by t h e accounts.
Extraordinary general meetings are held whenever t h e
b a n k council or t h e auditors find it necessary.
Besides this, extraordinary general meetings must be
called upon resolution passed by a general meeting, or
whenever shareholders whose shares aggregate at. least
one-tenth of the capital request it in a petition signed b y
t h e m and stating t h e object of t h e meeting.
A R T . 41. I n addition t o t h e m a t t e r s enumerated in
article 40, paragraph 1, which must be disposed of by t h e
yearly ordinary general meeting, t h e general meeting has
the following further powers:
(1) To elect 15 members of t h e bank council.
(2) To elect t h e audit commission.
(3) To decide all affairs of t h e b a n k which have been
laid before t h e general meeting b y t h e b a n k council on
its own motion or which are brought before it in pursuance of article 40, paragraph 5.
(4) To decide upon an increase of t h e bank's capital,
subject to t h e approval of t h e Bundesversammlung.
(5) To propose to the Bundesrat, for submission t o t h e
Bundesversammlung, modifications of this act.
(6) To decide as t o t h e renewal or t h e dissolution of
the company a t least one year before t h e expiration of
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i n g

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t h e privilege (art. 76, par. 4), in the former case taking
regard of t h e limits prescribed for the exercise b y the
National Bank of the bank-note monopoly.
(7) To decide as to the acquisition of existing banks
(art. 4, par. 5).
A R T . 42. Resolutions providing for an increase of
capital, as well as proposals to the Bundesrat looking to
t h e alteration of this act, can not be adopted by t h e general meeting unless at least one-fourth of the entire number of shares is represented; and resolutions providing
for t h e renewal or t h e dissolution of the company, according t o article 4 1 , paragraph 6, can not be passed unless
a t least one-half of the shares are represented.
If the first call does not result in a meeting competent
to act, a call m u s t be issued for a general meeting to
assemble at a new date at least thirty days later. At this
meeting, even if the number of shares required in the
preceding paragraph again fails to be represented, the
actions there contemplated m a y nevertheless be taken.
Attention is t o be drawn to this in t h e call for the second
general meeting.
A resolution for t h e renewal or the dissolution of t h e
company, after t h e expiration of the period of t h e privilege, requires for its passage two-thirds of the whole
n u m b e r of votes cast.
b. The bank

council.

A R T . 43. The bank council consists of 40 members
elected for t h e term of four years, of whom 15 are elected
b y t h e general meeting of shareholders and 25 b y t h e Bundesrat.

By a year is t o be understood t h e period between
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t h e close of one ordinary general meeting and the close of
t h e following ordinary general meeting.
A R T . 44. The members of the bank council m u s t be
Swiss citizens resident in Switzerland. In its composition regard should be had not only for t h e professional
element, but also for commerce, industry, and agriculture.
ART. 45. The choice of the 40 members of t h e b a n k
council takes place in the following manner:
First, the Bundesrat names the president and t h e vicepresident.
Next, the general meeting elects 15 members and advises
the Bundesrat of its choice. The Bundesrat then proceeds to the election of the remaining 23 members, of whom
5 at most may belong to the Bundesversammlung and 5
at most t o the cantonal governments.
In the choice of these 23 members, special consideration slioiild be given to the proper representation of t h e
principal centers of banking, industry, and commerce.
The members of the bank council are not obliged to deposit
any shares.
A R T 46. The bank council is charged with the general
supervision of the course of the business, and t h e m a n agement of the business, of t h e National Bank.
It decides questions relating t o all affairs of the National
Bank that are not expressly referred by this law t o other
organs of the bank.
I n particular, it has the following duties:
(1) To elect 5 members of t h e bank committee.
(2) To appoint the local committees.

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(3) To submit to the Bundesrat proposals (which are
not binding on the latter) for the election of the direktorium and the local managements.
(4) To examine and adopt definitively the regulations,
business reports, and annual accounts drawn up by the
bank committee conjointly with the direktorium and to
be submitted to the Bundesrat for its approval.
(5) To make rules concerning the transfer of shares
(art. 9).
(6) To fix salaries in conformity with article 64.
(7) To determine on and to prepare proposals to be
made to the general meeting.
(8) To make all decisions concerning the conclusion of
business transactions involving more than 5,000,000 francs
or the determination of the credit limit of customers of
the bank when this is more than 3,000,000 francs.
In the case of business transactions or determinations
of credit limits involving a sum greater than one-fifth of
the bank's capital, the action of the bank council requires
for its validity the assent of at least 30 members, The
same number is necessary for every new grant of credit
if the total credit exceeds the above sum.
In all other cases an absolute majority of votes governs;
in case of a tie, the chairman has the casting vote.
ART. 47. The proceedings of the council of the bank are
to be kept in a record which, after approval, must be
signed by the chairman and by the recording secretary.
The recording secretary is chosen by the bank council.

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Co mm is s i o n

A R T . 48. All orders and documents issued by t h e b a n k
council must bear the signature of t h e president of t h e
council and of a member of the direktorium.
A R T . 49. The members of the bank council m a y retire
a t any time, b u t the council must be informed of their
intention three months before.
Vacancies made by the departure of members of the
bank council chosen by the general meeting are filled a t
the next following ordinary general meeting. If the number of members elected by the general meeting is, however,.
reduced to 12, an extraordinary general meeting m u s t be
convoked for the purpose of filling the vacancies.
When members elected by the Bundesrat are t o be
replaced, t h a t body elects their successors as soon as
possible.
Elections to fill vacancies are always for the remainder
of t h e current term of office.
The periodical renewal elections are to be carried on
according to the rules above laid down for the formation
of the bank council.
Outgoing members are eligible for reelection.
A R T . 50. The bank council meets at least once per quarter, b u t it can also be convoked for extraordinary sessions by the president or upon the request of 10 members.
For the validity of proceedings the presence of a majority of the members is necessary.
If a quorum of the members of the bank council can
not be brought together, the president is authorized t o
call in as substitutes members of local committees; in
this case an equitable rotation must take place.

The

Swiss

Banking

Law

committee.

A R T . 51. A bank committee of 7 members, elected
for a term of office of four years, in its quality as delegate
of t h e bank council, exercises the detailed supervision and
control of the management of the National Bank.
This committee is composed of the president and vicepresident of the bank council and 5 other members to be
named b y t h e bank council. One Canton can not be represented on t h e committee by more t h a n one member.
The bank council further names 3 substitutes who will
replace members prevented from attending.
Meetings of the bank committees will be held as often
as may be necessary, and at least once a month.
In cases of business which the president considers
especially urgent, or, on the other hand, of too little
importance to justify the calling of an extraordinary
meeting, votes may be taken by means of circulars. All
decisions arrived at in this way must be subjected to
discussion at the next meeting, and must be embodied in
the record.
A R T . 52. I t is the duty of the bank committee to consider in advance all business t h a t is to be acted on b y t h e
bank council. I t cooperates in an advisory capacity in
the fixing of the official discount rate and of the rate of
interest on loans.
Business transactions or assessments of credit above
the sum of 1,000,000 francs, and which, according to
article 46, paragraph 8, need not be referred t o the b a n k
council for action, must be submitted to the bank committee for its approval.
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The b a n k committee must submit to t h e bank council,
for transmission t o t h e Bundesrat, nonbinding proposals
for t h e election of the direktorium and of the local
managements.
The bank committee, on the proposal of the direktorium, b u t without being bound b y those proposals,
appoints all officials of the National Bank having a salary
of over 4,000 francs, except those chosen by t h e Bundesrat.
I n the case of officials of branch offices, t h e bank committee
must, before making its choice, receive the proposals
both of t h e local committees and the local managements
concerned. If t h e proposals of these two bodies coincide
with those of the direktorium, they are binding on t h e
bank committee.
On the proposal of the direktorium, b u t without being
bound thereby, t h e bank committee will grant powers of
attorney—
(a) I n the departments of t h e direktorium.
(b) In the branch offices, after having t a k e n t h e advice
of the local committees and the local managements concerned.
(d) The local committees.
A R T . 53. Supervision of t h e branch offices is exercised
by the local committees. These committees consist, according to the importance of the place, of 3 to 4 members,
named by t h e b a n k council for a term of four years, and
chosen, by preference, from among the principal merchants
and manufacturers of the place and its neighborhood.
The local committees have a consulting voice in t h e a p pointment of t h e local managements. When officials of
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Law

their branch office with a salary above 4,000 francs are
t o be chosen, they must send in proposals t o t h e b a n k
committee, which proposals, however, are not binding.
Members of the bank council residing in the place where
a branch is located are eligible as members of t h e local
committee.
The bank committee selects from among t h e members
of t h e local committee the chairman of this committee
and his substitute.
The local committees meet as often as necessary; they
are competent to act when an absolute majority of the
members are present.
(e) The audit

commission.

A R T , 54. The general meeting, a t its ordinary session
each year, elects the audit commission for t h e following
year. This commission consists of 3 members and 3 substitutes. Persons who are not shareholders are eligible
as well as shareholders. The audit commission m u s t examine the yearly accounts and t h e balance sheet a n d m u s t
make a written report to the general meeting respecting
the state of the accounts.
This report must always be also communicated t o the
Bundesrat.
The audit commission has the right at all times to
examine the entire business working of the National
Bank, observing, however, the prescriptions contained in
article 61.
(/) The direktorium.
A R T . 55. The direktorium is the authority charged with
t h e actual management and execution of t h e business of
83700—10

225

National

Monetary

C ommis

sion

the bank; under reserve of articles 46 and 52 of this act,
and subject to the rules and regulations, it takes all
measures necessary for the fulfillment of the functions and
purposes of the National Bank. In particular, after obtaining the opinion of the bank committee and the views
of the managers of the principal branches, it fixes the
official rate of discount and the rate of interest on loans.
The direktorium chooses the officials and employees of
the central administration, so far as these have not to be
chosen by the Bundesrat or the bank committee.
The direktorium represents the Swiss National Bank
in reference to outside parties; it is the authority placed
immediately over all the officials and employees of the
central administration, as well as over the local managements.
ART. 56. The direktorium is composed of 3 members,
of whom 2 reside at Zurich and 1 at Berne.
The members of the direktorium are appointed by the
Bundesrat on the (nonbinding) proposal of the bank
council, for a period of six years.
The Bundesrat chooses from among the members of the
direktorium the president and vice-president thereof.
The business is divided among 3 departments; the department of discount and deposit business and the department of control have their seat at Zurich; the department
for the issue of notes, for the management of the cash
holdings, and for the transaction of business with the
federal administration and the federal railways, has its
seat at Berne.

226

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In the administration of their respective departments,
the several members of the direktorium must carry out
the decisions and instructions of the direktorium.
More detailed directions for the separation of business
contemplated in this article will be laid down in an
order of the Bundesrat, subject to the approval of the
Bundesversammlung.
(g) The local managements (lokaldirektionen).
ART. 57. The local managements consist of one manager (direktor) and one submanager, appointed by the
Bundesrat for a term of six years, on the (nonbinding)
proposal of the bank council, and after consultation with
the local committees concerned. They are charged with
the responsible management and the business conduct of
the branch offices of the bank, pursuant to the instructions of the direktorium and in accordance with the rules.
The local managements appoint the officials and employees of the branch offices, so far as these appointments
are not made by the bank committee. All the officials
and employees of the branch offices are placed under the
direct orders of the local managements.
2. GENERAL PROVISIONS.

ART. 58. The members of the local committees, of the
audit commission, of the direktorium, and of the local
managements must be Swiss citizens domiciled in
Switzerland.
ART. 59. Members of the Bundesversammlung, of the
cantonal governments, or of the bank council can not
227

Nat to n a I

Mo net ary

Com m is s to n

belong either to the direktoritim or to the local managements.
ART. 60. For a binding signature in the name of the
National Bank the joint signature of two persons duly
authorized to make the signature is requisite. Particulars on this point, within the requirements of article 52,
paragraph 5, will be laid down by regulation.
ART. 61. All the members of the bank authorities
as well as all officials and employees of the National Bank
are bound to strict secrecy as to the business relations
between the bank and its customers.
ART. 62. All officials and employees of the National
Bank with fixed salaries have the quality of federal officials and are subject as such to the federal legislation concerning the responsibility of federal authorities and officials.
The members of the direktorium and of the local managements, as well as all other officials and employees, can be
dismissed by order of the authority that appointed them,
the cause of dismissal being stated.
ART. 63. Rules and regulations proposed by the bank
council and approved by the Bundesrat will fix the powers
of the bank authorities and their relations to one another,
establish the minima and maxima of salaries, and govern
the conduct of business in general.
The determination of the minima and maxima of salaries requires the approval of the Bundesversammlung.
ART. 64. Within the maximum and minimum limits
named in the rules, the salaries of all officials of the National Bank are fixed by the bank council, on the (nonbinding) proposal of the bank committee and of the
direktorium.
228

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Law

The p a y m e n t of commissions (tantiemes) is not allowed
in any case.
VI.

COOPERATION AND S U P E R V I S I O N OF T H E C O N F E D E R A TION, I N T H E MANAGEMENT OF T H E

BANK.

A R T . 65. T h e cooperation and supervision in t h e management of the National Bank assigned to t h e Confederation b y article 39 of the federal constitution is effected—
(1) By its representation (chosen b y the Bundesrat) in
the authorities of the bank.
(2) By the election of the direktorium and of t h e local
managements.
(3) By t h e approval, reserved to t h e Bundesrat, of
the rules and regulations, the report of business, a n d t h e
annual accounts.
(4) By the report of the Bundesrat to the Bundesversammlung.
(5) By the special organs subordinate to the Federal
Department of Finance, whose appointment is reserved
exclusively to t h e Bundesrat and whose functions are determined by t h e law respecting the organization of the
Federal Department of Finance.
VII.

PENAI^ PROVISIONS.

A R T . 66. Any person who makes counterfeit b a n k notes
with t h e intention of using them as genuine ones, will
be punished b y imprisonment in t h e penitentiary for a
period not exceeding twenty years.
A R T . 67. Any person who alters the face value of a
genuine b a n k note t o a higher value, with t h e intention
of putting t h e note into circulation at t h a t higher value,
229

Nation

Mo n etary

Comm is s ion

will be punished by imprisonment in the penitentiary for
not more than five years or by imprisonment in jail for
not less than six months.
ART. 68. Any person who knowingly puts counterfeit
or altered bank notes into circulation as genuine ones will
be punished by imprisonment in the penitentiary for not
more than three years.
Any person who has received counterfeit or altered
bank notes as genuine, and, after discovering their spuriousness, puts them again into circulation, will be punished by imprisonment in jail for not more than one
year or by a fine not exceeding 5,000 francs.
ART. 69. Any person who makes or procures for himself engravings, plates, blocks or other forms, with the
object of counterfeiting or altering bank notes, will be
punished by imprisonment in the penitentiary for not
more than five years or by imprisonment in jail for not
less than six months.
ART. 70. Any person who makes or circulates, as advertisements or as mere jokes, printed matter or pictures
resembling bank notes will be punished by imprisonment
in jail for not more than three months or by a fine of
not more than 500 francs.
ART. 71. Counterfeit or altered bank notes must be
destroyed, and likewise the engravings, plates, blocks, or
other forms used or intended for their production.
ART. 72. Any person who, contrary to the revised article 39 of the federal constitution, issues bank notes or
other similar money representatives will be punished by
imprisonment in jail for not more than one year or by
230

The

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Bank

i ng

Law

a fine of five times the face value of the unauthorized
notes, but in any case not less than 5,000 francs.
ART. 73. The provisions of articles 66 to 72 are also
applicable in reference to gold and silver certificates.
(Art. 15, No. 9.)
ART. 74. The penalties set down in articles 66 to 73 of
this act are also applicable to acts performed in foreign
territory. Moreover, the general terms of the federal
penal code are applicable,
The trial of penal cases falls under the federal system
of criminal justice.
VIII. DURATION OF THE PRIVILEGE OF THE NATIONAL
BANK.

ART. 75. The duration of the privilege of the National
Bank for the issue of bank notes is fixed at twenty years,
beginning with the day of the opening of the bank.
ART. 76. The decision as to the renewal or nonrenewal
of the privilege of the National Bank, as well as the possible taking over of the bank by the Confederation, is
made by way of federal legislation.
In case the Confederation desires to renew the privilege,
the duration of the renewed privilege shall, each time, be
ten years.
In case the Confederation does not desire to renew the
privilege, it reserves to itself the right of taking over the
whole business of the National Bank with all assets and
liabilities, after having previously given one year's notice,
on the basis of a balance sheet made up by mutual consent or, in case of disagreement, by judgment of the
federal court.
23*

National

M on et ary

C o mm is s i o n

If t h e general meeting decides on t h e liquidation of t h e
company (art. 4 1 , No. 6) t h e Confederation can take over
t h e National Bank in t h e same manner.
A R T . 77. In case of the transfer of the National B a n k
to the Confederation the shares are repaid at their nominal value, together with 4 per cent interest during t h e
time of liquidation.
The surplus, so far as it is not required for covering
losses, is divided as follows: One-third to the Confederation, t o be paid to the new note-bank; one-third t o t h e
Cantons in proportion to their population; one-third t o
t h e shareholders.
Any remaining excess of assets goes over to the new
note-bank of t h e Confederation as its property.
IX.

SETTLEMENT OF LAWSUITS.

A R T . 78. The federal court tries, as the only court of
judicature: (a) All private lawsuits arising out of t h e
issue of bank notes; (b) disputes between the Confederation, the Cantons, and other owners of shares of t h e
National Bank among themselves or with the National
Bank in reference to the net profits or the proceeds of
the liquidation; (c) disputes concerning the drawing u p
of the balance sheet in the event of the National Bank
being taken over by the Confederation. (Art. 76, No. 3.)
All other lawsuits against the National Bank are tried
in the ordinary way.
X.

TRANSITIONAL

DISPOSITIONS.

A R T . 79. After this act has gone into force, the Bundesr a t will ask t h e Cantons and the b a n k s of issue to state t o

The

Swiss

B a n k i n g

w7hat extent they desire to participate in providing the
capital of the National Bank, according to article 6.
The Bundesrat will fix the time for subscription for
the two-fifths of the capital reserved for private individuals.
ART. 80. After the capital has been subscribed, the
Bundesrat elects the president and vice-president of the
bank council, according to article 45.
When the first installment of the capital has been paid,
the shareholders will be convoked by the Federal Finance
Department to a constituent general meeting, which will
be presided over by the chief of that department as the
representative of the Bundesrat and which will choose 15
members of the bank council, as provided in articles 41,
43, and 45 of this act.
ART. 81. As soon as the Bundesrat on its part has completed the bank council by electing 23 other members,
making the prescribed total of 40 members, the bank council will be called together for the purpose of appointing
the bank committee.
ART. 82. The bank committee will take up its functions
immediately, so far as this is possible. In particular, it
must submit to the Bundesrat, with the least possible
delay, proposals for the election of the members of the
direktorium.
ART. 83. After at least two members of the direktorium
have been chosen, the bank council must, on the basis of
proposals made by the direktorium, and reported on by
the bank committee, take all the measures necessary for
the further organization of the bank and for its opening
for business.
2

National

Monetary

Commission

With the exception of t h e first installment called for
b y t h e Bundesrat, all further p a y m e n t s on t h e shares
subscribed for will be called for by the b a n k council,
t h e approval of t h e Bundesrat having previously been
obtained.
The expenses incurred during t h e period of organiza-'
tion will be advanced b y t h e Confederation, to be refunded
afterwards.
A R T . 84. As soon as it is entered in the commercial
register (Handelsregister), the National Bank will be considered established. Its operations can begin as soon as
(1) half of t h e capital is paid in; (2) t h e central administration and branch offices at not less t h a n 4 Swiss banking
centers have been organized.
The other appointments contemplated in this act, of
supervisory authorities, officials, and employees, are also
t o be m a d e a t this time.
The first term of office of t h e supervisory authorities,
officials, and employees already appointed, and also of t h e
other organs of t h e National Bank, begins at this time.
A R T . 85. From the day on which this act goes into
force, the Bundesrat is authorized to refuse any demand
for new issues, or increase of existing issues, of b a n k notes.,
on t h e basis of t h e b a n k note act of March 8, 1881.
A R T . 86. The withdrawal of the notes of the banks of
issue hitherto existing m u s t be effected in a period of not
'more t h a n three years from t h e day of t h e opening of
the National Bank for business, in t h e following manner:
Every b a n k of issue is obliged t o deliver for destruction
at the end of each quarter, b a n k notes equal to at least
-?34

The

Swiss

Banking

Law

one-twelfth of the nominal a m o u n t of its actual (effektiv)
note issue in circulation on the day of t h e opening of t h e
National B a n k ; or, if a less amount is sent in, t o make
u p the deficiency in cash.
However, if the amount of notes delivered by a bank
of issue in the course of a quarter exceeds one-twelfth,
t h e excess will be carried forward to the next quarter's
account.
The notes to be destroyed will be sent to the control
authorities instituted by the Confederation and the cash
to t h e National Bank.
The National Bank will facilitate, as much as possible,
the liquidation of the bank note business of the existing
banks of issue, and t h e withdrawal of their notes, b y
granting advances on securities in accordance with article
15, No. 4.
A R T . 87. On t h e date fixed for the last delivery, each
b a n k of issue m u s t send in to the National Bank an itemized list of its notes which are still in circulation. The
National Bank undertakes, for itself and its possible
legal successors, to redeem such notes during a period
of thirty years from the above date. Upon the expiration
of this time t h e equivalent of t h e notes t h a t have not
been presented for redemption will go to t h e federal
invalid fund.
In t h e case of any b a n k t h a t delivers the equivalent in
cash of its outstanding notes before the expiration of the
full period, t h e National Bank unconditionally undertakes t h e redemption of its notes from t h e day on which
such delivery is made.
235

N at io n a I

Monetary

Commission

A R T . 88. So far as these transitional provisions do not
necessitate modifications of the federal act of March 8,
1881, on t h e issue and redemption of b a n k notes, t h a t
a.ct and t h e rules and regulations made in pursuance of
its requirements continue effective as to t h e control
authority and the hitherto existing banks of issue, until
these latter have freed themselves of all their obligations
to t h e note holders.
A R T . 89. During t h e period fixed for t h e withdrawal of
the notes, t h e National Bank and all its branch offices will
accept in p a y m e n t t h e notes of banks of issue and will provide for their redemption within three days free of cost f so
long as these banks of issue punctually redeem their own
notes and reciprocate with t h e National Bank.
A R T , 90. I t is t h e d u t y of the Bundesrat, in pursuance
of t h e provisions of the federal law of J u n e 17, 1874, c o n ~
cerning t h e taking of the popular vote on federal laws
and resolutions, t o promulgate this law and t o fix the
date of its going into effect.
So resolved by the Standerat, Berne, t h e 6th of October, 1905.
The President:
E. ISLER.
The Secretary:
SCHATZMANN.

So resolved by the Nationalrat, Berne, the 6th of October, 1905.
The President:
SCHOBINGBR.

The Secretary:
RINGIER.
236

The

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Bank

i n g

Law

The Bundesrat resolves:
The above federal law shall be made public.
Beme, the 7th of October, 1905.
In the name of the Swiss Bundesrat:
The President of the Confederation:
RUCHET.

The Chancellor of the Confederation:
RINGIHR.

Date of publication: The n t h of October, 1905.
Expiration of referendum period: The 9th of January,
1906.

237

APPENDIX

III.

THE NEW SWISS CENTRAL NOTE BANK.
By Dr. ALEXANDER ERD£LY.
[Translation.]

The establishment of a central note-issuing bank has
occupied Swiss public opinion for the last twenty-five
years. Three bills h a d been submitted before t h e Federal Council was able to sanction the law passed by t h e
Federal Assembly on J a n u a r y 16, 1906. The chief obstacles which h a d t o be surmounted existed in the pecuniary interest which t h e Cantons h a d in t h e continuation
of a state of decentralization as well as in t h e choice of
the central seat for the new institution and in t h e decision
as t o the system t o be adopted. The Cantons were indemnified in a manner satisfactory t o t h e m ; with regard
t o t h e seat, a compromise was concluded, and as t o organization, an agreement was ultimately arrived at which
provided t h a t t h e new bank should combine t h e character
of a private banking institution with t h a t of a state bank.
The authorized capital of the bank is 50,000,000 francs,
divided into 100,000 registered shares of 500 francs each,
on which so far 50 per cent, say, 25,000,000 francs, has
been paid up. No minimum dividend is guaranteed; on
t h e other hand, t h e dividend is limited to a m a x i m u m of
4 per cent. B u t in spite of this and other limitations, the
subscription t o t h e capital was secured without difficulty.
A syndicate comprising several cantonal banks offered to
advance to t h e Cantons, at the rate of 4 per cent per
238

The

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Banking

Law

annum and free of commission or any other charge whatever, the moneys necessary for the call of the first 50 per
cent, of which offer, however, the Cantons did not avail
themselves. The Cantons, together with the then issuing
banks, took over the quota of three-fifths of the capital,
say, 30,000,000 francs, reserved to them by the new act;
the remaining 20,000,000 francs were offered for public
subscription, and, notwithstanding the fact that only subscriptions from Swiss citizens or firms domiciled in
Switzerland were accepted, the issue was three times
oversubscribed.
The Swiss National Bank is purely a note-issuing,
transfer, and discount bank. Its note issue is not limited, neither is there a tax levied on it; but the federal
act explicitly confers upon the National Bank the right
of issuing notes according to actual needs. The only restriction imposed upon the bank is that a minimum of
40 per cent metallic cover against the notes must be
maintained. This metallic cover must consist either of
bar gold, foreign gold coin, or Swiss legal tender. The
last mentioned may be either in gold or silver, and the
National Bank is compelled to redeem its notes at any
time in legal tender. The notes have not been declared
legal tender; only the bank itself and the public offices
are obliged to accept them in payment.
The 36 note-issuing banks which previously existed in
Switzerland, with a capital of about 250,000,000 francs
and a note issue of the same amount, have to liquidate
this branch of their business within three years from the
day of the commencing of operations of the National
2

National

Monetary

Co m m is s io n

Bank—i. e., from J u n e 20, 1907. The previously existing
banks of issue h a d the right to issue notes only up t o
double the a m o u n t of their own capital, and the cover
for the notes could consist of metal, bills, securities, or
cantonal guaranties, so t h a t the newly created state of
things constitutes a distinct improvement on the previous one. The Swiss National Bank has already been
able to show results during the first period of its existence, as eleven issuing banks have renounced their right
of issue, so t h a t their note circulation, amounting t o
91,750,000 francs, has fallen t o the National Bank. T h e
right was renounced b y all those banks which used to
cover with bills of exchange t h a t portion of their notes
not covered by metal, and nearly all those which covered
a portion by securities, so t h a t at present, with two
exceptions, only banks with cantonal guaranty are still
issuing notes.
The weekly returns give an idea as to how the Bank
has so far developed. The first statement, issued J u n e
30, 1907, shows t h e following movement compared with
t h a t of December 31, 1907, and October 31, 1908:
ASSETS.

J u n e 3 ° . 1907.
Francs.
31,026,290

Cash:
Gold
Silver
N o t e s of o t h e r b a n k s ,

Securities
Other assets-._

Francs.

75,483,429 j

Francs.

16,457,050

18,868,400 I

316,478,47r
8,791.905
3.653.965
77. i 6 7 , 9 3 4
6,818,301
8,606,542
14,522,368

102,895,086

214,778,392 j

236,039,486

4.745.395
7.893.300
4o,959,8i2
1.813,238

Bills r e c e i v a b l e
Bills w i t h c o l l a t e r a l s e c u r i t y

D e c . 3 1 , 1907. j O c t . 3 1 , 1908.

240

5,860,620 j
2,486,000 i
105.553.205 ;
2.715.725 I
3,811,012 !

The

Swiss

B an king

Law

LIABILITIES.

J u n e 30, J 907.

Francs.
25,ooo,000

Capital paid u p
Note circulation
Short-time liabilities
Other liabilities

D e c . 3 1 , 1907.

O c t . 3 1 , 1908.

Fratics.
25,000,000

Francs.
25, o o o , 0 0 0

57,646,550

159,220,050

179.327.300

19.398,244
850,291

26,753.447
3,804,894

20,875.785
10,836,401

102,895,086 ! 214,778,392 J

236,039,486

The cash assets of t h e whole of t h e Swiss issuing banks
a m o u n t e d in 1906 to from 110,000,000 to 120,000,000
francs in gold a n d 10,000,000 francs in silver, a total
already exceeded b y t h e new note bank, whereas its note
circulation does not nearly equal t h a t of t h e old issuing
banks in t h e year 1906. T h e proportion of t h e cash
reserves t o t h e amount of t h e effective circulation of t h e
old issuing banks used t o vary between 51 a n d 61 per
cent; for t h e new note bank t h e proportion averaged for
t h e year 1907 66.26 per cent, while t h e m a x i m u m was
80.38 per cent, in July, and a t t h e end of December t h e
proportion was about 51 per cent. This year, in t h e
month of February, t h e metallic cover worked o u t a t 7 2 ^
per cent of t h e circulation; on August 23, 1908, t h e notes
were covered as to 91,17 per cent b y metal, a n d even
during t h e great stringency in October, 1908, t h e metallic
cover amounted to 69,86 per cent. T h e Bank's metallic
reserve, which a t first was about 36,000,000 francs, h a s
already reached t h e considerable sum of 125,000,000 francs.
The development of t h e relations between t h e National
Bank a n d t h e older issuing banks, a n d t h e influence which
the National Bank exercised upon t h e whole character of
83700—10

241

N at i o n a I

M on et a r y

Com m i s s io n

the Swiss note circulation, may be gathered from the following table:
I. N O T E

CIRCULATION.
Swiss N a t i o n a l
Bank.

Francs.
J u n e 30, 1906
D e c e r n b e r 3 x, 1906 _ .
J u n e 30, 1907
December 31, 1907,.
J u n e 3 0 , 1908
S e p t e m b e r 30, 1 9 0 8 .

57,646,000
159,220,000
146,278,000
165,800,000

O l d e r issuing
banks.

Total.

Francs.
235.512,000
242,469,000
190,041,000
129, o n , 000
99,640,000
86,196,000

Francs.
235.512,000
242,469,000
247,687,000
2S8, 2 3 1 , 000
245,918,000
251,996,000

Francs.
116,400,000
117,656,000

Francs.
116,400,000
117,656,000
124,622,000
j 40,764,000
j 44,463,000
165,288,000

I I . METALLIC R E S E R V E .
Francs.
J u n e 30, 1906
December 31, 1906.
J u n e 30, 1907
December 31, 1907J u n e 3 0 , 1908
S e p t e m b e r 30, 1908

35.7 72,000
8i,344,000
98,769,000
125,507,000

88,850,000
59,420,000
45,694,OGO
39,781,000

I I I . UNCOVERED NOTE CIRCULATION.

J u n e 30, 1906
D e c e m b e r 3 1 , 1906 _ .
J u n e 30, 1907
D e c e m b e r 3 1 , 1907 _ .
J u n e 30, 1908
S e p t e m b e r 30, 1 9 0 8 .

21,875,000
77,876,000
47.509,000
40.293.000

Francs.
119,112,OOO
124,S13,000
101,191,000
69,590,000
53,946,000
46,415,000

Francs.
119,112,00c
C24, 8 1 3 , OOO
123,066,000
147,466,000
101,455,000
86,708,000

In consequence of the Bank having fully lived up to its
real mission, especially by its discounting bills exclusively at the bank rate and its refusal of finance bills,
its rate of discount, even during the crisis, did not rise
very high, as compared with the rates of other countries,
and only toward the middle of November, 1907, was it
raised from 5 to sH per cent, when a bank rate of 7 per
242

T h

Swiss

B a n king

La w

cent in London and of 7% per cent in Berlin was ruling.
The effect of the discount policy of the National Bank in
the year 1907 appears from the following table:
The yearly average of t h e official rate of discount was:
1906.
Per

In England
In Belgium
In Switzerland

cent.
4. 26
3.84
4.78

As against England
As against Belgium

1907Per

cent
4 . 92
4-94
4-9.3

+ 0. 52
+ 0.94

Thus Switzerland not only managed to get through the
bad winter of 1907 with a comparatively moderate rate
of discount; it was also able to immediately enjoy the
monetary relaxation which made itself felt in t h e new
year. On J a n u a r y 16, 1908, the rate of discount was
lowered from 5 ^ per cent to 5 per cent; on F e b r u a r y 2,
from 5 per cent to 4 per cent, and on March 19, from
4 per cent to -$% per cent.
Since March 19, 1908 (the date of writing this article),
no further alteration has taken place.
On repeated occasions leading officials of t h e Swiss
National Bank have declared t h a t a proper discount
policy should not only consist in securing low rates of
interest for the country, b u t also in keeping interest rates
as stable as possible. I t is hoped t h a t t h e rate of 3 X p e r
cent can be kept in force until t h e end of t h e year (1908).
The high rate of exchange on Paris, however, could
only temporarily be lowered, as, owing t o the active
business intercourse existing with France and Germany,
243

National

Monetary

Commission

Switzerland was not able to protect itself against t h e
influence of dear money prevailing in those countries.
Especially bills on Paris are greatly in demand, although
t h e practice of settling international and even over-sea
debts by acceptances payable in Paris, which obtained
even up to ten years ago, is now no longer adhered to.
P a r t of the acceptances which used to be domiciled in
Paris are now covered directly via London, H a m b u r g ,
Amsterdam, etc. The high r a t e ruling on Paris is due to
t h e fact t h a t a considerable portion of t h e federal, as well
as of t h e numerous cantonal loans, has been placed in
France, so t h a t large credit balances have continuously
to be kept u p in Paris for t h e coupon payments. The
amount of t h e Swiss indebtedness to France to-day m a y
be estimated a t one and a quarter billion francs a t least,
which includes French participations in Swiss enterprises
and French ownership of real estate in Switzerland.
T h e monthly average of t h e rate of exchange on Paris
was:
1906.

January...
February
March
April
May
June
July
August
September
October
November
December.

1907.

188!
030 1

1908.

IOO. 2 2 8 i

IOO

IOO 28l |

IOO

IOO 225 j

IOO 0 2 8 j

IOO

094

IOO 205 !

IOO

175

IOO

234

IOO. 133

156 1
IOO 155 !

IOO 135

99 QII \
99 886 \

IOO

IOO 0 0 0

99 900

IOO 0 2 2 '

IOO OI5 1

99 965 \
99 984

99 933 i
TOO 015 !
100.015
j

047 1

99 997 j

99 QJJ
99 Q2J

IOO

071

IOO 0 7 7

IOO

143

IOO 07 1

IOO 3*1 2 !
IOO

37X 1.

I n general, however, t h e state of t h e exchange on one
foreign country only can not be accepted as a criterion
244

The

Swiss

Banking

Law

for t h e exchanges on t h e whole. If t h e average condition
of all foreign exchanges of importance for Switzerland
(on Prance, England, Italy, Germany, Belgium, Holland,
Austria-Hungary) is taken as a basis, then t h e exchanges
in Switzerland are continually at a premium. T h u s t h e
state of t h e Swiss money value was:
[Per thousand francs.]

January _ _
February _
March
April
May
June
July
August
September
October
November.
December.

)o6.

1907.

4-o. 9
+ 0.5
+ 0.5

4-o. 01
+ 0.8

+ 2.0

4-2.3
+ 3-1
+ 3.7
4-2. 7
4-1.6
4-1-5
+ 1.8
+ 0.8

+ 0. 2

Par.
-I-1.2
4-2.3
+ 2.0

+ 1.8
+ 1.6
4-1.0

1908.

Par.
4-0.5
4-o. 09
4-1.2
4-1.3
+ 2.4
+ 2.6
+ 2.0
4-1.0
4-1.9

— 1. 1

-0.9

I t follows t h a t except during t h e most acute stage of
t h e crisis in November and December, 1907, t h e Swiss exchanges were continually a t or above par.
On November 11 t h e situation was t h e following:
Bid price of foreign

exchanges.
Bid price on

On Paris
London
Italy
Germany
Belgium
Holland
Austria
New York

Nov. 11,
1908.

Legal parity.

100.00

100.00
25.2215
100.00
123-457
100.00
208.3193
105.01
5.182

25. 10
99-88
122. 7 2 K
99.63
208.28
104. 73H
5.16

245

National

Monetary

Commission

Therefore only exchanges on Paris are at par, whereas
those on all the other countries are to be had below par,
and even at a very considerable discount in favor of Switzerland.
The influence of the Swiss National Bank will show
itself fully only from the moment when it will have absorbed all the remaining issuing banks. It would be of interest to hear what has now become of the practice of exporting 5-franc pieces across the borders of Switzerland, which
was carried on by unscrupulous speculators and known
under the name of "drainage." France and Switzerland,
as members of the Latin Coinage Union, accept, as is
known, each others 5-franc pieces as legal tender; Some
knowing people near the western frontier soon found out
that on this basis a good business might be done. According to Swiss banking law, nobody is obliged to take notes.
These so-called "draineurs " therefore went to the bank
counters in order to have the notes exchanged into coin.
With the hard cash so obtained they traveled across the
boundary into France, where they exchanged the 5-franc
pieces for French notes. Then the French notes were
brought back to Switzerland and sold at a premium.
These notes were again exchanged for hard cash, and the
business repeated itself. This manipulation, however, is
remunerative only if the premium exceeds the necessary
expenses plus a fair profit; that is to say, if that premium
is a/t least 0.25. If the rate of exchange is higher, then the
profit will be larger.
This business practice, however, seems to have lost
ground since the new note bank commenced its opera246

T he

Swiss

Banking'

Law

tions, as the importation of coined silver into Switzerland
amounted (in millions of francs) to:
1897
1898
1899
1900
1901
1902
1903
.
1904
1905..-1906

'_ _

1907 . .

66. 9
76. o
110. 2
84. 1
33-3
61.6
25. 8
41.7
43.7
26. 5
27.6

At a higher premium, say already at about eight-tenths
of 1 per cent, speculators could make use of postal money
orders. As the remittance of 1,000 francs to Paris costs
5.50 francs, and the credit balance so obtained could be
sold for 1,008 francs, another small profit results, which
the speculator does not disdain. The loss arising from
such operations has to be borne by the post-office department when the balance resulting from this international
business intercourse is settled. The postal authorities
have since taken steps to prevent such fraudulent manipulations by raising the cost of postal money orders to
France for large amounts.
The same advantage of the premium in exchange is
taken in Roumania and Bulgaria; that is to say, when the
premium rises remittances are directed by post to Paris,
and the parties interested in these transactions manage
things in such an astute way that the postal authorities,
even with the greatest vigilance, can not prevent these
manipulations without encroaching upon individual rights.
The note banks established in the frontier towns of
Switzerland were affected by this "drainage" to such an
247

National

Monetary

Commission

extent—since they were obliged to fetch back the silver
from France, a measure involving considerable expense—
that some of them renounced their right of issue.
The central note bank will be able to carry on its business with an amount of notes smaller than the aggregate
of the issues of the old note banks, notwithstanding the
ever-growing needs of Swiss commerce. For this purpose
the cheque, transfer, and clearing service is a very welcome instrument, rendering possible a considerable saving
of currency. The smaller banks, on the other hand, had
a pecuniary interest in keeping as many notes in circulation as possible; these notes then weighed heavily on the
market, depressing the private discount rate and driving
cash out of the country, thereby also exercising an influence which should not be underrated upon the rates of
exchange and damaging the whole economic life of the
country.
The idea of the foundation of a central note-issuing bank
sprang chiefly from the prevailing unsatisfactory condition
producing a continual depreciation of the currency. To
protect the value of the currency is therefore one of the
principal objects in the National Bank's programme.
The National Bank has covered the whole country
with a net of branches and agencies, which are all connected with the transfer service.
It now possesses branches in Basle, Berne, Geneva,
Lausanne, Lucerne, Neuchatel, St. Gall, and Zurich, and
agencies in Aarau, Altorf, Bellinzona, La Chaux-deFonds, Coire, Fribourg, Lugano, Schwytz, Sion, Solothurn, and Weinfelden. The turnover of the transfer
248

The

Swiss

Banking

Law

business from June 20 to December 31, 1907, amounted
to 5,019,000,000 francs, and in the first nine months of
1908 to 7,612,000,000 francs. The National Bank has
moreover taken over the clearing houses which existed at
the commencement of its operations at Berne and Zurich,
and has opened new clearing offices at Basle, Geneva, and
St. Gall. The aggregate turnover of the clearing offices
amounted in 1907 to 2,465,989,925 francs. The monetary
intercourse is further facilitated by—
(a) The facility of paying in to any correspondent of
the National Bank free of charge any sum of money for
the credit of clients having transfer accounts.
(b) The right conceded to every transfer client of having
paid out to nontransfer clients at any business place of
Switzerland any amount to the debit of his transfer
account.
(c) The establishment of a gratuitous transfer service
between the transfer clients of the National Bank and the
holders of Swiss postal cheque accounts.
(d) The creation of a Swiss general money order, which
is obtainable from the National Bank and its branches in
unlimited amounts, free of charge, and which is payable
at every branch and agency of the National Bank.

249

APPENDIX

IV.

EXCERPTS FROM THE FIRST REPORT OF THE
SWISS NATIONAL BANK FOR THE PERIOD FROM
JUNE 20, 1907, TO DECEMBER 31, 1908.
By resolution of J a n u a r y 16, 1906, the Federal Council
decreed t h a t t h e federal law of October 6, 1905, regarding t h e Banque Nationale Suisse should enter into force.
The Federal D e p a r t m e n t of Finance was charged with
the execution of the preliminary work of organization.
Under date of F e b r u a r y 9, 1906, t h e Federal Council
addressed to t h e Cantons and to t h e banks t h a t enjoyed
the privilege of bank-note emission in accordance with
t h e act of March 9, 1881, regarding t h e emission and redemption of b a n k notes, a circular letter inviting t h e m
t o inform the Federal D e p a r t m e n t of Finance u p to
March 25, 1906, whether and to w h a t extent t h e y intended t o participate in t h e formation of t h e capital fund
of t h e Bank. The d e p a r t m e n t subsequently informed t h e
Cantons, under d a t e of February 12, 1906, t h a t a syndicate formed b y a number of cantonal banks was ready t o
advance t h e m t h e necessary funds at t h e first p a y m e n t
of 50 per cent on t h e shares, at the rate of 4 per cent per
a n n u m without any expense or commission charge. No
Canton was obliged to avail itself of this liberal offer.
After having ascertained on t h e basis of t h e declarations received t h a t t h e 60 per cent of the capital fund, i. e.,
30,000,000 francs, which the law reserves for t h e Cantons
and t h e banks of issue had been fully subscribed by t h e
250

The

Swiss

Banking

Law

interested parties, the Federal Council submitted for public subscription from June 5 to 9, 1906, the remaining 40
per cent of the capital, i. e., 20,000,000 francs.
This subscription was submitted with the assistance of
194 Swiss banking houses t h a t had declared their willingness t o act as subscription offices without any charge for
commission. In order to insure in any case t h e subscription of t h e capital, t h e d e p a r t m e n t of finance m a d e
arrangements with a syndicate of 13 Swiss banks, according to which these banks bound themselves t o take at t h e
terms of the prospectus, without any indemnity as t o
expense or commission, all shares which had not been disposed of b y public subscription or for which for any
reason t h e subscription could not be accepted.
The number of subscriptions amounted to 12,266 and
reached a total of 67,855,000 francs. The distribution of
the available 40,000 shares took place according t o a
schedule which t h e department of finance had established
for this purpose, and which the Federal Council had
approved. I t followed as much as possible the directions
of t h e third paragraph of article 7 of t h e bank act: " A s
regards t h e distribution of shares, preference shall be given
to t h e small investors." After t h e distribution had been
effected the capital of the Banque Nationale was distributed according to the register of shareholders, among—
Shares,

3,438 shareholders each possessing
5,459 shareholders each possessing
1,749 shareholders each possessing
75 shareholders each possessing
796 shareholders each possessing
337 shareholders each possessing from
325 shareholders each possessing from
251

1
3
4
5
6 to 10
11 to 25

National

Monetary

Commissio

n
Shares.

45 shareholders each possessing from
8 shareholders each possessing from
8 shareholders each possessing from
7 shareholders each possessing from
8 shareholders each possessing from
j shareholder possessing more than

26
51
101
201
301

12,256 shareholders (individual) holding a total of
23 Cantons holding a total of
37 banks of issue holding a total of

jjc

vf.

50
100
200
300
400
400

40, 000
38, 764
21, 236

12,316 shareholders holding a total of
Of.

to
to
to
to
to

100, 000
yf.

vf.

I t was necessary t o secure t h e proper localities for t h e
Bank. This task was considerably facilitated hy t h e fact
t h a t in four of t h e places for which t h e establishment of a
branch of t h e Banque Nationale h a d been t a k e n into consideration t h e banks of issue with restricted operations
which were established there and which relinquished their
privilege of bank-note emission either at once or a few
months after t h e opening of the Bank, ceded their buildings
t o t h e Banque Nationale, which could also t a k e over t h e
greater p a r t of t h e force of these Banks.
During t h e establishment of these branches, as well as
t h a t of t h e first a n d third department of t h e general office
a t Zurich, t h e B a n k has acquired at Bale the building of
t h e Banque de Bale; a t Geneva t h a t of t h e B a n q u e du
Commerce de Geneve; at Neuchatel t h a t of the B a n k
Commercial Neuchateloise; at St. Gall t h a t of t h e Banque
de S t Gall; a t Zurich t h a t of t h e Banque de Zuerich.
The Federal D e p a r t m e n t of Finance stipulated t h e
amount of t h e first p a y m e n t a t 20 per cent of t h e par value
of t h e shares; t h e law demanded t h a t this be m a d e before
t h e first general meeting of shareholders. T h e individual
stockholders h a d t o make this p a y m e n t by July 10, t h e
252

The

Swiss

Banking

Law

Cantons and the banks of issue by July 17,1906, The Federal Council made interest-bearing investments with the
10,000,000 francs paid with a number of Swiss banking
houses, for account of the Banque Nationale.
The second payment of 30 per cent was, with the approval
of the Federal Council, called by the bank authorities for
May 21, 1907.
%
%
%
^
%
Up to the close of 1908 the governments of 10 Cantons
had made use of the privilege conferred by article 4, paragraphs 3 and 4, of the act upon the Cantons which had
no branch, by demanding that an agency be established
in their territory and that this agency be intrusted to their
cantonal bank. During 1908 the following agencies have
been opened:
On May i, the agency at Aarau, at the Banque d'Argovid.
On May 4, the agency at Fribourg, at the Banque de F E t a t de Fribourg.
On May 14, the agency at Coire, at the Graubuendner Kantonalbank.
On May 25, the agency at Soleure, at the Solothumer Kantonalbank.
On June 5, the agency at Weinfelden, at the Thurgauische Kantonalbank.
On September 5, the agency at Altdorf, at the Ersparniskasse des Kantons Ur.
On September 10, the agency at Schwyz, at the Kantonalbank Schwyz.
On September 16, the agency at Bellinzone, at the Banca Cantonale
Ticinese.
On September 21, the agency at Lugano, at the Banca della Svizzera
Italiana.
On November 3, the agency at Sion, at the Caisse H y p o t h e c a t e et
d'Epargne du Canton du Valais.

The opening of an agency at Herisau, which will be
confided to the Appenzell Ausserrhodische Kantonalbank,
will probably take place in March, 1909,
The brilliant business period which began throughout
the world in 1904 and which reached its culmination in
the course of 1906, was nearing its end at the time the
253

National

Monetary

Commission

Banque Nationale Suisse opened. I n consequence of t h e
increase in price of all raw material and of manual
labor, as well as in t h e money rate, a decrease in consumption had succeeded the feverish activity of commerce and industry and had caused a general slackening
of business. The first task of our central establishment
consisted of ameliorating t h e disagreeable consequences
of this critical period in Switzerland and t o prevent it
from developing into a more serious crisis. The b a n k
authorities considered as t h e most efficient means t h e
creation of a very strong metal reserve, which alone
would permit t h e obtaining of a larger elasticity of circulation. The calm observed in Switzerland during t h e
stormy period from October t o December, 1907, has been
t h e outcome of this measure.
For the year 1908 a general business depression was
making itself felt which was aggravated b}^ serious
political complications. Almost all Swiss industries suffered from this state of affairs and if at present one has
t h e impression t h a t the situation has somewhat improved
this has been less due to actual results t h a n to t h e hope
which begins t o be revived. The fact t h a t our industries
which have been strengthened by t h e favorable period
which has preceded these critical times, could live through
it without great injury, must be a source of jo}r to us,
because it proves t h a t our commercial enterprises did
not permit themselves t o be carried beyond t h e limits of
a normal optimism and t h a t most of t h e m knew how to
adopt a degree of prudent moderation. I t must be added
t h a t in spite of t h e economic depression, t h e agricultural
revenues have been generally satisfactory, t h a n k s t o t h e
254

The

Swiss

Banking

haw

food crops; this has contributed toward ameliorating t h e
severity of t h e industrial crisis
During this period t h e Bank has demanded t h e following rates for discount and for loans against securities:

From
From
From
From
From
From
From

June 20 to August 14, 1907, during 56 days
August 15 to November 6, 1907, during 84 days,
November 7 to January 15, 1908, during 70 days
January 16 to January 22, 1908, during 7 days__
January 23 to February 19, 1908, during 28 days
February 20 to March 18, 1908, during 28 days__
March 19 to December 31, 1908, during 288 days.

Rate of
discount.

Rate of
loans
against
securities.

Per cent.

Al/2

5
5M

4lA

3 A

The average discount rate in Switzerland for t h e year
1908 amounted to 3.73 per cent against 4.93 per cent in
1907. The years 1887-1889 and 1892-1895 are t h e only
ones during a period of twenty years which show a
lesser average t h a n t h a t of 1908.
The Bank has always tried to let the country enjoy
rates of discount as low as t h e general interest, our foreign
trade balance, the international money market, and t h e
rates of exchange would permit.
The following are t h e official averages for t h e years
1907 a n d 1908 in—

France
England
Germany
Belgium
Holland
Austria
Italy

1907.

1908.

Per cent.
3.46
4.92
6.03
494

Per cent.

4.89
5-07

43345-

4.91

3»5

5. 10

Average of the 7 foreign countries

255

3-04
3.00

National

Monetary

Commission

The official rate of discount in Switzerland for 1907 has
therefore been 0.02 per cent above the average; in 1908,
0.12 per cent below the average of the rates of the abovementioned foreign countries. During the years from
1904 to 1906 the Swiss discount rates had been on an
average one-half of 1 per cent above foreign rates.
The average of the rate of discount in foreign countries
in 1907 has been: In France 4 per cent, in England 7 per
cent, in Germany jY2 per cent, in Belgium 6 per cent, in
Holland 5 per cent, in Austria 6 per cent, and in Italy
$y2 per cent. These rates represent an average of 5.86
per cent, while the highest rate demanded in Switzerland
was 5K per cent.
The average bid rates for foreign exchange in Switzerland have been—
I

For France
England . .
Germany .
Belgium. _
Holland - Austria
Italy

1907-

100.13

25. 22 14
123. 06 1%
99-86K
208.45
164. 5 8 M
IOO.

12%

1908.

Above
(+)or
below
( - ) par.

Rate.

Per cent.
4 - i . 300
+ . 140

100. 67 H'

—3- 195
-1-375
+ .627
-4-047
+ i . 250

Above
( + ) or
below
( ~ ) par.
Per

25-15K
123.06K

cent.

+ 0.775
- 2 . 7.36
~ 3 - 155

99.82K
208.08H

-I.7SO

104.72

— 2. 761

IOO. 04 >4

— 1.112

.425

The rate of exchange offered by foreign countries on
Switzerland has therefore exceeded par in 1907 by threefourths of 1 per cent, in 1908 by \}/2 per cent. The

256

The

Swiss

Banking

Law

average of the years 1904 to 1906 has been 0.721, i. e.,
about three-fourths of 1 per cent above par.
In 1908 Switzerland has benefited by a particularly
advantageous rate of exchange on foreign countries
which was even more favorable in view of the fact that
commercial statistics indicate a volume of imports exceeding by 549,000,000 francs the volume of exports.
In accordance with the temporary ordinances of the
bank act, the notes of the old banks of issue must be
recalled within at most a period of three years from the
date upon which the Bank commenced its operations.
The banks were required to deliver at the close of each
trimester, in bank notes to be destroyed, at least onetwelfth of the nominal amount of their actual issue on
the day of the opening of the Banque Nationale; in case
of insufficiency of bank notes the amount must be completed in specie. As the Bank opened its doors on June
20, 1907, the withdrawal of the first six-twelfths took
place on September 20 and December 20, 1907, and on
March 20, June 20, September 20, and Pecember 20,
1908.
As a certain number of banks relinquished their privileges of note emission prior to the time fixed by law, the
circulation of the bank notes of the banks of issue diminished much quicker than the law had provided for, and
the circulation of the notes of the Banque Nationale has
increased in the same proportion.

83700—10

257

National

Monetary

Commission

Chronological tables of the banks which renounced their
privilege of emission were—

Date of renunciation.

Actual issue
according to
Issue author-! last stateized on Dec, ment published before
31, 1906.
day of renunciation.
Francs.

Banque de Bale
Banque du Commerce de Geneve
Bank in Luzern
Banca della Svizzera Italiana
Banque Commerciale Neuchateloisc
Credito Ticinese
Bank in St. Gallen
Toggenburger Bank
Bank in Schaff hausen.
Thurgauische Hypothekenbank
Banca Cantonale Ticinese

June

20,1907
do
__.
Aug.
1, 1907
do
Sept. 20, 1907
do
Dec. 20, 1907
Dec. 31, 1907
Jan.
2,1908
Jan. 31,1908
Sept. 17,1908

Total.

Francs.

24,000,000
24,000,000
5,000,000
3,000,000
8„000,000
2,250,000
18,000,000
i,000,000
3,500,000
1,000,000
2,000,000

23,000,000
24,000,000
5,ooo,000
2,878,400
8,000,000
2,250,000
i6,210,000
800,000
2,900,000

91,750,000

86,998,400

750,000
1,210,000

The banks mentioned have remitted to the Banque
Nationale the security for the amount of their circulation
at the date of renunciation; that is, the 40 per cent (legal
minimum) in legal tender, the balance in specie, in bills
of exchange,, or securities. The Bank has in return
pledged itself to redeem their notes which figure in its
statements and in its balance sheets equally with its own
circulating notes.
On the morning of the opening (June 20, 1907) the circulation of the Banque Nationale amounted to 44,169,750
francs.

258

The

Swiss

Banking

Law

It increased as follows:
Average:
1907
1908
Maximum:
1907 (December 31)
1908 (December 31)
Minimum:
1907 (June 25)
1908 (February 26)

Francs.
88, 866,000
145,870,000
159, 220, 050
204,055,550
46,997,450
*I9>553> 400

On the date of the statements published the average
proportion of the various denominations compared to the
total circulation was:
1908.
Per cent.

Bank notes of—
1,000 francs
500 francs..
100 francs..
50 francs—

Per cent.

4- 25

4. 22

5-73
54-87

5 40
52.70
37-68

35- 15

The following tables illustrate the total circulation of
bank notes in Switzerland, and the comparative position
of the Banque Nationale and the banks of issue according
to the statements published on June 15 and 30, 1907,
December 31, 1907, June 30, 1908, and December 31, 1908:
Dates.

Note circulation of the
Banque Nationale Suisse.
Francs.

June 15, 1907
June 30, 1907
December 31, 1907June 30, 1908
December 31, 1908.

57.646,550
159,220,050
146,278,450
204,055,550

259

Actual note
circulation of
Swiss banks
of issue.
Francs.
235,144.050
190,041,400
129,010,750
99,640,300
73.654.350

Total circulation of Switzerland.

Francs.
235,144,050
247,687,950
288,230,800
245.9i8.7So
277,709,900

National

Monetary

Commission

The proportion of the notes of the Banque Nationale
compared to the total circulation of Switzerland was:
Per cent.
23.27
55. 24
59. 48
73-48

June 30, 1907
December 31, 1907
June 30, 1908
December 31, 1908

The cash holdings serving as metal security, in accordance with the bank act (legal tender, gold in bullion, and
foreign coins), amounted to:
Average:
1907- ..1908
Maximum:
1907 (December 27)
1908 (November 19)
Minimum:
1907 (June 20)
1908 (January 3)

Francs.
58, 420, 000
106,419, 000
82, 731, 720
128,034, 7*7
33»355»385
81, 827, 241

*
1907.

Francs.
88,866,000

Circulation not secured by legal tender

Francs.

58,420,000

145.870,000
106,419,000

30,446,000

39,451,000

Per cent.
65.74
80. 69

Proportion of metal security:
Average

1908.

51.09

Per cent.
72.95
91-45
51-97

The receipts of the bank from June 20, 1907, to December 31, 1908, are summarized as follows:

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Discount
Interest on loans against security
Interest on security holdings
Interest paid by correspondents
Profit on own securities held
Commissions, charges for safekeeping, and other income
Income on real estate

Francs.
3, 536, 744. 84
117, 477. 36
428, 208. 93
527, 766. 27
68, 298. 40
93, 753.40
209, 865. 85

Total
Less debit interest

4,982, 115.05
472, 959. 27

Gross profits
4*509, 155. 78
Deduct from gross profits:
Francs.
Administration charges.2, 067, 500. 79
Expense on import of specie.
162, 397.45
Amortization on:
Expense of organization to
Francs.
be written off
226,059. 8 4
Furniture
29, 388. 03
Securities
6, 689. 60
—
262, 137. 47
2,492,035.71
Net profits
2,017, 120.07
Less 10 per cent to be paid into the reserve fund in accordance with the provisions of the bank act
201, 712. 00
Leaves at the disposal of the general meeting
1,815, 4°8. 07
Distribution of dividend of 18 francs per share, which represents an income of 2% per cent for the period comprised
between the date of the payments made and that of June
20, 1907, the day of the opening of the Bank, and of 4 per
cent from June 20, 1907, to December 31, 1908
1,800,000.00
Balance remaining at the disposal of the Federal
Treasury according to the ordinances of the bank
act

15,408.07

The amount of indemnity to be paid to the cantons
the first period past amounted to 2,441,267.05 francs.
The net profit realized does not, therefore, permit
Bank to pay this amount to the Federal Treasury.
When considering this result one must remember
unfavorable trend of commerce and industry during
261

for
the
the
the

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Monetary

Commission

)rear 1908. One must also take into consideration the fact
that during the transitory period in question the circulation of the notes of the old banks of issue still amounted
to an average of 12,1600,000 francs, thus competing with
the notes of the Banque Nationale. Article 29 of the bank
act stipulates, particularly with a view to this transitory
period, that should during a period the profit realized by
the Banque Nationale be insufficient to cover the indebtedness to the cantons, the Federal Treasury will advance the
amounts necessary. These loans will be refunded to the
Confederation with interest at 3% per cent per annum as
soon as the net profits of the Bank shall permit it.
From the present results we may hope that a greater
profit will be realized in future. The regular payment of
the maximum dividend of 4 per cent is assured,, The
Bank will also be in better position to furnish the indemnity to be paid to the cantons and to refund the loans
made by the Federal Treasury after it will have the exclusive control of the issue of notes and after the economic
situation will have improved.

262

APPENDIX V.
Balance sheet of December J J , 1908.
ASSETvS.
Francs
25, 000, 000. 00

Capital not paid in
Cash:
Gold coins of the Latin Union
Gold in bullion
Foreign gold coins
Dollars (silver)
Odd coins
vSwiss bank notes
Foreign bank notes
Other cash items

Francs.
91, 065, 685. 00
24, 537, 223. 70
1, 878, 194. 90
7, 227, 050. 00
303, 613. 59
2, 823, 000. 00
365,242.25
21,434. 33
128, 221,443. 77

Bills discounted :
Swiss bills
Foreign bills

63, 746, 299. 31
44, 680, 729. 85

Bills for collection
Due from correspondents
Sundry debts
Loans upon collateral
Government securities
Coupons
Bank buildings
Furniture
Interest in arrears:
(a) Loans
(b) Government bonds
(c) Buildings of the Bank
Expenses of organization
Total

16
05
48
88
50
55
40
40
00

4> 397
26,923
17
527, 000

95
65
15
00

292, 873, 360. 94
LIABILITIES.

Capital
Notes in circulation
Demand deposits
Federal administration
accounts
Sundry creditors
Drafts in circulation
Rediscounts
Net profits

108, 427, 029
450, 853
8, 182, 188
458, 134
10, 445, 180
6, 171, 307
131, 847
4, 465, 037
362, 000

Francs.
50, 000, 000. 00
204, 055, 550. 00
21, 131, 622. 13
and

deposit
13, 898, 848. 66
773, 643. 91
694, 557. 67
302, 018. 50
2, 017, 120.07

Total

292, 873, 360. 94
263

APPENDIX

VI.

A D D R E S S O F M. R. COMTESSE,
Federal Councilor, Head of Federal Department of Finance.

At t h e first meeting of the stockholders of t h e Swiss
National Bank on August 23, 1906, M. R. Comtesse said:
G E N T L E M E N : I feel sure t h a t no one will contradict m e
when I assert t h a t wonderful results have been achieved
in our country by t h e law which decreed t h a t a b a n k of
issue be established under the n a m e of Banque Nationale
Suisse, and t h a t t h e day on which t h e first general meeting
of shareholders is held in order for t h e first time t o avail
themselves of t h e authority which the law conveys t o
them, marks an important epoch in our financial and
economic life.
This result had been long desired and expected b y all
those who were justly of t h e opinion t h a t t h e system of
various banks of issue, although amicable relations existed
between them, and in spite of t h e commendable efforts
which they m a d e t o regulate our circulation, could not
respond any more to the growing commercial requirements and were not able to accord us sufficient guarantee
for a satisfactory paper circulation and for t h e security of
our credit.
Experience h a d t a u g h t this elsewhere. The necessity
for unification in this field of paper circulation and in t h e
methods of circulation had m a d e itself felt elsewhere; it
was bound to m a k e itself felt with us. All of t h e States
which surround us have successively gravitated toward
264

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Law

centralization in the emission of bank notes. It is this
tendency which has led to the creation of the Bank of
France, which has given a new direction to the paper circulation of England, which has in Belgium replaced the
Society Generate and the Banque de Belgium with the
Banque Nationale, which has extended for another period
the privilege of the Banque de Hollande, which prompted
the rulings of the Austrian law and put an end in Germany
to the segregation of the States as far as the banks of issue
and their competition among each other were concerned;
it is this tendency which has also caused the American
banks to enter upon a new period of uniformity and conservatism regarding the issue of paper money.
We are, therefore, conforming ourselves to an experience
which has been made in other countries, where it has been
recognized for a long time that uniformity and security
of circulation could only be assured by intrusting to one
single financial institution authority to circulate paper,
and to regulate this circulation according to the requirements of the national market.
The circulation of bank notes must be governed by the
demands of commerce and the exchanges; bank notes are
the medium of the exchanges and markets. If the markets decrease, the circulation of the mediums of exchange
must also be reduced; when they multiply, this circulation
must be increased in consequence.
The circulation is limited by the demand, and these
limits should not be exceeded. The paper circulation
must always have the precious metal as a solid and stable
basis, and it must expand and contract in the same meas265

National

Monetary

Commission

ure as does the metal circulation. The bank note can only
serve as an auxiliary, always attached to the principal medium—the metal. Therefore it is not possible that a number of banks that are often competitors that obey various
impulses, that have no other aim but their own interest,
and that operate within their limited sphere of action,
could regulate the increase and contraction of paper circulation in accordance with the requirements of the country and the condition of the metal circulation. Only a
central bank with branches and with agencies covering
the territory should be endowed with the power necessary
in order always to be able to ascertain and to judiciously
estimate the requirements of the market, to watch and
regulate the circulation, and to build up at the same time
a reserve sufficient to meet all emergencies.
It must therefore act as a highest and disinterested
arbiter, opening or closing the valve in order to regulate
the flow of circulation in accordance with the level of
requirement, so that at certain times there will not occur
a superabundance of paper and at others a stringency.
The interest of the country must always be the first incentive for its determinations, and it must never forget that
the monopoly which has been granted it has not been conferred for the purpose of realizing big profits, but above all
for the purpose of letting the public profit by the establishment of the Bank, of letting it enjoy the benefit of an
efficient paper circulation, and of everything that may
favor the development of commercial discount.
The establishment of the discount rate follows closely
upon the question of paper circulation—that is, upon the
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Law

privilege of issue with which the Bank is invested. It
goes without saying that the Bank must try to provide
commerce with a discount rate as stable and as favorable
as possible, having its attention always fixed upon the
general monetary situation, on the situation of the
exchanges, on business activity, on the general tendency
of affairs, on all the exterior or interior economic conditions which decide either the extension or contraction of
demand. But it must never forget that the only way to
check any possible abuses of paper or credit circulation
will be found in the discount rate and that the increase of
the rate of discount is the most efficient means of protecting the metal reserve, of preventing currency from leaving
the country, and also of preventing an exaggerated
extension of credit and imprudent speculation. In this
way the Bank will be able to maintain the stability of its
credit and of that of the country, and to prevent and to
ameliorate the crises to which we may be exposed.
May the Banque Nationale thus understand its task.
May it always handle judiciously the mighty mechanism
which it will control through the bank note and discount,
and whose power must grow with the years. It will then
render to our peoples on the field of commerce and finance
constantly increasing services, and it will soon win in the
country a place beyond all expectation, a confidence
which can not be destroyed and which will permit the Bank
to exercise a great and beneficent influence on the trend
of affairs. Then in a few years even those whose ideas as
to the organization of the Bank differed from ours will
have to acknowledge that a Bank established upon any
267

National

Monetary

Commission

other basis could not have accomplished the great variety
of service and amount of activity that the institution does
which has been at last given to the country.
Upon all of us now rests the duty to assist in making
this institution an all-powerful one, in securing for it the
respect of the country, so that it may be enabled to render it the most efficient service in the interest of prosperity. We ask the cantons to form a stronghold around
it, for then they will share in its profits and will find the
Bank a valuable factor for their budget, and one whose
value will surely increase with the years. We ask of our
people to give it their confidence, secure in the knowledge
that such a force, well directed, will have upon the fortunes, the credit, the future of our country, a tremendous
influence, and that with its resources, with its metal reserve, with its entire organization, it represents the most
powerful bulwark for our credit, the security of our people,
and the resources of our country in times of a crisis and
danger.
In conclusion let me give expression to the hope that
the men who will be called upon to administer its affairs
may always, as regards their intelligence, their special
aptitude, their watchfulness, and their patriotism, be
fully worthy of the delicate mission intrusted to them.

268

APPENDIX VII.
REFERENCES.
ANGERSHAUSEN, D I E ZENTRALNOTENBANKFRAGE IN DER SCHWEIZ.

Kxe-

feld, 1904.
BURCKHARDT-BISCHOFF,

D I E ZETTELBANKEN I N DER SCHWEIZ UND DAS

BEDURFNIS EINER EINHEITLICHEN NOTENZIRKULATION. Basel, 1865;
2d ed., 1891.
DAVID, D E S BANQUES P U B U Q U E S E N SUISSE.
E R N S T , E I N E SCHWEIZERISCHE BUNDESBANK.

Lausanne, 1870.
Winterthur, 1904.

G E E R I N G , D I E VALUTAFRAGE.
GYGAX, K R I T I S C H E BETRACHTUNGEN UBER DAS SCHWEIZERISCHE
BANKWESEN MIT BEZIEHUNG AUF DER PARISER WECHSELKURS.

NOTENZurich,

1901.
KALKMANN,

UNTERSUCHUNGEN UBER DAS GEL/DWESEN I N DER SCHWEIZ

UND D I E URSACHEN DES HOHEN STANDES DER AUSWARTIGEN W E C H S E L -

KURSEN.
LANDMANN, SYSTEM DER DISKONTOPOUTIK.

Kiel and Leipzig, 1900.

P F A U , D A S B A N K W E S E N DER SCHWEIZ UND DES AUSLANDES.
P I C T E T , D E S BANQUES DE CIRCULATION EN SUISSE.

Zurich, 1875.

Geneva, 1863.

SAYOUS, D E LA CREATION E N SUISSE D'UNE BARQUE CENTRALE D E M I S S I O N .

Paris, 1900.

269

Full text of The Swiss Banking Law : Study and Criticism of the Swiss Legislation Respecting Banks of Issue, and Especially of the Federal Act of October 6, 1905, Concerning the Swiss National Bank

FRASER