Swiss voters have decisively rejected radical proposals meant to make the financial system safer by changing the way banks provide loans to the economy.
In a referendum on Sunday, just 24.3 per cent of voters supported the Vollgeld, or “sovereign money”, initiative, which would have stripped banks of their ability to “create” money when giving loans to consumers and businesses.
The result came as a relief to the Swiss National Bank, the central bank, and others in the country’s finance sector. Thomas Jordan, chairman of the SNB, said during the referendum campaign that the Vollgeld initiative was “an unnecessary and dangerous experiment” that would damage the Swiss economy.
Responding to the outcome of the referendum, the central bank said a Yes vote would have made its work “considerably more difficult”.
The Vollgeld plan would have abolished “fractional reserve” banking — the basis of financial systems around the world, under which only a fraction of deposits held by banks on behalf of customers are backed by notes and coins or banks’ deposits at the central bank.
In addition, the SNB would have had the authority to allocate central bank money to the government — or even directly to the public.
The initiative was conceived as a response to the global financial crisis a decade ago, which had its roots in irresponsible lending by commercial banks.
A small group of economists and other supporters had pushed for the vote on “sovereign money,” gathering the 100,000 signatures required for the proposal to land on the nationwide ballot.
According to the Swiss National Bank, the introduction of “sovereign money” would not have eased credit and asset bubbles because banks could still underestimate risk, leaving them exposed to future crises.
Thomas Jordan, the central bank’s chairman, had warned that the “sovereign money” initiative was “an unnecessary and dangerous experiment, which would inflict great damage on our economy.”
If approved, Switzerland, famed for its banking industry, would have been the first country in the world to introduce such a scheme, leading opponents to brand the plan a dangerous experiment which would damage the economy.
The plan could have had repercussions beyond Switzerland’s borders by removing a practice which underpins most of the world’s bank lending.
“I won’t get into details, as the large banks in this country are being used as the rationale for the initiative, but I don’t expect the Swiss people to be suicidal and approve it,” UBS (UBS) CEO Sergio Ermotti said recently.
S&P Global Ratings had said that a yes vote would have affected “the creditworthiness of Swiss banks.”
It’s not the first time that a radical referendum has been put to Swiss voters. Two years ago, the country voted down a proposal that called for a generous universal income.