“Banking services are indispensable for individuals and companies alike” – 
Martin Hess on the facts and figures in the BAK Economics study  

Martin, the findings of the latest study once again underscore the central role played by the banking industry in the Swiss economy. Could you tell us in a nutshell why this is the case?  

The banks are very important because they ensure that payments work smoothly, enable capital to be allocated more efficiently and reduce financial risks for their customers. The services they provide are thus indispensable for individuals and companies alike. Both service quality and financing conditions, for example, are outstanding in Switzerland on an international comparison. This is why the economic value added by the banking industry is so high. Its share of GDP was 5.4% in 2023. Banking services, meanwhile, made up 16% of service exports. Almost 160,000 full-time equivalents are directly employed in the provision of banking services. 

Chart: BAK Economics. Source: BAK Economics

As well as value added by the banks, the study also mentions indirect effects. What does this mean? 

These indirect effects are due to upstream products and services the banks buy in from other industries – not just IT and consulting, but also completely different services we would not immediately associate with the banking business, such as cleaning. These totalled CHF 24.8 billion in 2023, almost 60% of the banks’ direct value added. For every franc of value added in the banking industry, another 58 cents are generated in other industries. That is economically significant.  

Does this value added have an impact on tax revenues as well?  

Generally speaking, yes. Large industries have a lot of staff, and they pay income tax. On top of this, the financial sector’s activities generate high tax revenues in the form of withholding tax, value added tax and stamp duty. These financial-market-specific taxes amounted to CHF 9.1 billion in 2023, enough to fund all of the federal government’s education and research spending with a billion left over. Taxes the banks pay on their profits also contribute substantially to the public coffers.  

Does this mean that investing in the banking industry pays off more than people tend to assume? 

Absolutely, assuming that banks can continue to operate profitably in Switzerland going forward. This means keeping costs in check, but it also requires a regulatory framework that gives banks scope to make a profit. If they do, it benefits everyone through the taxes they pay. Generating profits is also essential to the banks’ stability as it allows them to accumulate equity capital. I find it astounding that these arguments are hardly even mentioned in the political arena. 

We can see that real value added by the banks has fallen by 10% in the space of a year. What caused this? 

The size of the fall has surprised me, especially since banks have created jobs during that period, while nominal value added has risen by 3.2%. The reason is the deflator, a technical, non-observable measure of inflation specific to banking services. BAK Economics explains that its inflation estimate is due to interest margins having normalised after a protracted phase of low interest rates. 

The study shows that gross value added per employee is almost twice as high for insurers as it is for banks. Why is this?  

I think there are essentially two reasons. On the one hand, capital outlay per employee is much higher for the insurers, particularly the extraordinarily large reinsurers. On the other, the study shows that the indirect effects are relatively high with regard to the workforce but relatively low in terms of value added. This suggests that insurers are outsourcing activities to other industries, many of which have low productivity. 

How important is cross-border business for the Swiss economy? 

Much more so than many people realise. When it comes to exports, they automatically think of chemicals, pharmaceuticals, machinery and tourism. In fact, banking services are the country’s second-biggest source of income from service exports after licence fees. In terms of net exports, i.e. after deducting imports, banking services are actually well ahead in first place. I am not very surprised that Switzerland imports few banking services from abroad. I do not know anyone who pays their Swiss salary into a foreign account.