Switzerland: Schweizerische Volksbank Capital Injection, 1933

Anmol Makhija ()
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Anmol Makhija: YPFS, Yale School of Management, https://elischolar.library.yale.edu/journal-of-financial-crises/

Journal of Financial Crises, 2024, vol. 6, issue 3, 471-486

Abstract: Schweizerische Volksbank, or Swiss People's Bank, grew to be the second-largest bank in Switzerland by 1930, when its balance sheet peaked at 1.7 billion Swiss francs (CHF). Beginning in 1929, nonperforming assets weighed on Volksbank's profitability. By 1933, the bank faced losses on CHF 118.5 million in assets, representing approximately 10% of total assets. The government provided liquidity in the form of loans and deposits to Volksbank in 1931 and again in 1933 until it could finalize a capital injection. In 1933, the government determined that Volksbank was too important to the national economy to allow its failure. As owners of a cooperative bank under Swiss law, Volksbank's shareholders held shares at par value and had the ability to redeem them at par with sufficient notice, similar to depositors in mutual banks in the US. On December 8, 1933, the Swiss federal government issued a decree authorizing the government to subscribe to CHF 100 million (USD 30.3 million) of new cooperative shares. The decree required that the existing shares of the bank should be written down to 50% of their nominal value. From January 1947 onwards, Volksbank gradually bought out the government's CHF 50 million investment, starting with the purchase of CHF 10 million of shares using the bank's reserves and then purchasing CHF 40 million through a consortium. Volksbank placed these shares on the market gradually at par.

Keywords: ad hoc capital injection; bail-in; Switzerland; Volksbank (search for similar items in EconPapers)
JEL-codes: G01 G28 (search for similar items in EconPapers)
Date: 2024
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