Switzerland: The Regulation Of Banks Under The Swiss Competition Act

The regime applicable to banks under the Swiss Competition Act is not different from that applicable to other industries. Banks are supervised by the Competition Commission and its Secretariat under the control of agreements between undertakings (art. 4 LCart), the control of abuses of a dominant position (art. 7 LCart) and the control of concentration between undertakings (art. 5 LCart). There are however two major particularities in the banking sector.

Firstly, the Competition Commission is in principle to be notified of a concentration between undertakings when the participating undertakings realised a worldwide turnover of CHF 2 billion or a turnover in Switzerland of CHF 500 million and at least two of the participating undertakings realised a turnover of CHF 100 million in Switzerland in the year preceding the concentration. However, in the case of banks governed by the Federal Act on Banks and Savings Banks, not the turnover, but ten per cent of the balance sheet total shall be taken into account (art. 9. Al. 3 LCart). The portion of bank's balance sheet total is determined by the ratio between loans and advances arising from transactions with persons domiciled in Switzerland (banks and customers) and the total loans amount of those loans and advances. Thus, in the case of a concentration between two banks, the total of the balanced sheets (or the last consolidated balance sheet) must exceed 20 billion Swiss francs and the last balance sheet or the last consolidated balance sheet of each participating bank must exceed 1 billion Swiss francs.

Secondly, the Federal Banking Commission, and not the Competition Commission, is competent to approve the merger of banks if said merger is likely to cause a prejudice to the banks' creditors. To date, this provisions have never been applied in practice.

The first step of the merger assessment is the definition of the relevant market. The relevant market is made of the product market and the geographical market. The product market consists of all the products or services substitutable, owing to their characteristics and use, to the product or service under consideration (art. 11 (3) lit. a OCCE). The geographical market corresponds to the territory on which the potential partners in the operation are engaged, on the side of supply and demand, for product or services composing the product market.

The practice of the Competition Commission has defined, inter alia, the following geographical markets in the banking field;

1. international: trade and project finance, money market instruments and foreign exchange;
2. national or international: commercial loans above CHF 2 million, private banking, asset management and capital market instruments;
3. national: car leasing and consumer goods leasing;
4. regional or cantonal markets: mortgage loans, commercial loans and consumer loans;
5. regional markets: retail banking and deposits.

Are considered as affected markets by the practice of the Competition Commission, the markets:

• in which the total market share of two or more of the participating undertakings in Switzerland is 20% or more, and those
• in which one of the participating undertakings' market share in Switzerland is 30% or more.

In the case of the UBS merger, the Competition Commission made an in-depth examination of the commercial loan market and the mortgage loan market. In these two markets, the participating undertakings did hold individually either in excess of 20% or of 30% of market shares. With respect to the mortgage loan market, the Competition Commission did not impose any charge or condition as it was convinced that there was effective competition by other banks, although the merger lead to a strengthening of the position of the UBS. In the commercial loan market, the Competition Commission restricted the product market definition to commercial loans up to CHF 2 million. In eight regional markets, serious concerns about the risk of creating a collective market dominance arose. The Competition Commission therefore imposed conditions such as the divestiture of 25 branches as a package to one buyer which would be interested in retail banking, the sale of two subsidiary banks established in two of the eight relevant geographical markets and that commercial loans which cumulate up to CHF 4 million due to the merger be maintained under the same conditions until 31 December 2000.

Since the entry into force of the LCart in 1996, 16 banking concentrations have been notified to the Swiss Competition Commission. Only in two cases did the Competition Commission open an in-depth examination: in the aforementioned case of the UBS merger and in the case of General Electric Capital Corp./Bank Procredit. Only in the UBS case did the Competition Commission impose charges and conditions.

The banking mergers have created structures which could make implicit coordination between competitors easier. Within a few years, financial institutions of great economic power have been created. The Competition Commission will surely watch carefully that this does not result in anti-competitive agreements or in abuses of a dominant position.

On the other hand, the openness of the Swiss market to foreign banks and financial institution forces the Swiss banking industry to remain competitive. This may explain why the first five years of merger control did not raise particular problems for the Swiss banking industry. The openness to foreign competition is indeed certainly one of the safest means to ensure a sufficient degree of competition on the Swiss market.