Banks and the Swiss Economy

The topic of the thesis is banks and the Swiss economy. It consists of four main partswhich make empirical contributions to the fields of banking, productivity analysis,financial economics, macroeconomics and economic history. The first part describesthe construction of a newly developed data set, containing balance sheets and profit& loss accounts of Swiss banks from 1906-2007.The second part is about banking intermediation efficiency in Switzerland. Bankingefficiency is estimated utilizing stochastic frontier analysis. The results show thatstate owned cantonal banks and co-operatives are more stable in terms of efficiencythan big universal banks. There is little variation in cost efficiency. Scale effects arepresent, while banks with market power do not seem to obstruct smaller banks. Arisk measure based on the Basel II standardized approach is included to incorporatethe cost of risk.The third part investigates Swiss banking crises and their effect on the Swiss economy.Banking crises are determined by estimating deviations from potential returnon equity with Bayesian dynamic stochastic frontier analysis. Several periods of distressare revealed. The most prominent are the Great Depression, the mortgage crisisof the 1990s, the burst of the dot-com bubble and the onset of the sub-prime crisis in2007. These are put in historical perspective. The deviations from potential outputare included in a Bayesian dynamic factor model in order to generate an aggregatedbanking distress measure. To estimate the macroeconomic effects of banking crisesthis indicator is used in a time-varying coefficients Bayesian vector autoregressionwith sign restrictions identification setup. The results show that GDP growth, thebanking sector and credit conditions responded strongly to banking shocks. Thedependence of the Swiss economy on its banking industry is strongest during theGreat Depression, weak in the mid 20th century and regains importance during the1990s/2000s. Credit conditions relax earlier now than in the 1930s, while banksrecover more quickly.The fourth part studies the reduction in macroeconomic volatility in Switzerlandfrom 1949-2006 with respect to an abatement in economic shocks. The data for aset of variables are compared with the predictions from a dynamic stochastic generalequilibrium model with financial frictions using a relative mean square approximationerror. The hypothesis, that a large part of the reduction in macroeconomicvolatility in the last 25-30 years could be the consequence of good luck in form ofsmaller shocks, cannot be rejected.