Banking

Game changer: Swiss banks ditch secrecy

Switzerland, the world’s largest offshore wealth center, worth an estimated $2.2 trillion in assets, has signed an agreement to share financial information with nearly 60 other countries, which could completely change the country’s financial landscape.

The country has made a giant leap towards banking transparency after it signed a convention with the Organization for Economic Cooperation and Development (OECD) agreeing to exchange data with 60 member countries.

Switzerland already has bilateral tax collection agreements with the UK and Austria, but the move to chip away another layer of the country’s infamous banking secrecy was prompted by international pressure from the US, Germany, and France,

The tax agreement, called the Multilateral Convention on Mutual Administrative Assistance on Tax Matters came into force in 2010, and includes all G20 states, and most European states. The convention requires participants to pool tax collection information, and includes automatic exchanges, in some cases.

Under the convention, the Swiss government can call on large private banks like UBS AG, Julius Baer, and Credit Suisse Group AG to turn over confidential information to international tax watchdogs.

The crackdown on the tight-lipped policy could cost the Swiss business, as the new policy may be a turn-off for foreign banks. At the beginning of 2012, 145 foreign banks had offices in Switzerland, and as of May 2013, 16 had left, according to data from the Association of Foreign Banks in Switzerland.

Between 2008 and 2012, foreign bank assets decreased by $921 billion, as tax evasion eroded and clients withdrew money.

London to become Chinese offshore banking center

Britain has relaxed stringent rules for Chinese banks willing to set up in London. Beijing in turn opened up its markets to British-based investors, marking the latest move to establish the yuan as one of the world’s key currencies.

“A great nation like China should have a global currency,” said UK Chancellor of the Exchequer, George Osborne, during his official five day visit to China. And the UK is gladly willing to contribute “through the international center of finance: London”.

Under the agreed pilot program, China sanctioned London-based investors to buy up to 80 billion yuan ($13.1 billion) of stocks, bonds and money market instruments directly, avoiding Hong Kong transactions, Reuters reports.

Meanwhile, Britain will let Chinese banks set up wholesale branches in London, easing regulations the country had imposed after the financial crisis broke out. Since 2008, Britain has insisted that most foreign lenders should set up their UK operations as “subsidiaries” rather than branches, which provides greater protection for depositors and taxpayers. Less regulation will be welcomed by Chinese lenders who have always complained the rules made it hard to operate in Britain, prompting them to move much of their business to Luxembourg.

Fed up? US expected to cut cash stimulus

The main question ahead of the key Fed meeting on Tuesday is whether the world’s largest economy can survive on less government monetary stimulus. Data shows the economy is still luke-warm but politics will encourage the Fed to slow quantitative easing.

Chair Ben Bernanke gave strong hints in August that the Fed would decide to begin tapering its stimulus in September. If he reneges it could destabilize markets and jar investors.

A final decision will be reached on September 18 at the conclusion of the two-day meeting of Federal Open Market Committee (FOMC).

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