Banks in Their Regulatory and Economic Environment

Banks serving as an interface between investors and borrowers are important for the economy. Banks provide loans and enable private and commercial investment and growth. Most people buying a house or a flat need a loan. Also most companies can handle larger investments only through loans. Lending and the associated risk assessments are key tasks of the banks’ business. Money from savers, investors and from central banks is provided to economy. Thus it is important that the bank can borrow enough money from the central bank, from other commercial banks and from savers and that this supply is not interrupted – as it can happen in times of a crisis. It should be ensured that the depositors’ money in almost any case is not lost. Confidence in the system – avoiding massive withdrawings of creditors’ money – is an important element. The failure of a bank can trigger a domino effect in the banking world. When banks mistrust each other and reduce lending, the economy is also affected. For many people the bankruptcy of the U.S. bank Lehman Brothers in 2008 was a shocking experience, especially for countries and economies in which the banking sector plays a dominant role. For example in Switzerland, it is a huge dilemma of what to do in such a crisis situation. The big banks are just too big; they are “too big to fail.” One consequence is the current regulatory request that big banks should be providing living wills and resolution and recovery planning (see Sect. 3.7.5.8). The economic and financial crisis of the recent years took place against the background of past political, technological and economic developments and regulatory decisions. These are in particular the following: