Definition of Cantonal Banks

Definition of Cantonal Banks: what is a Cantonal Bank?
Switzerland’s Federal Constitution (in German) gives the Swiss government authority to issue banking legislation. In doing so, the legislator is obliged to give due consideration to the Cantonal Banks’ particular role and position. The elements that set Cantonal Banks apart from other institutions and the special provisions that govern Cantonal Banks are set out in laws and ordinances. The Swiss Federal Law on Banks and Savings Banks (in German) includes two major points:

• The legal basis for a Cantonal Bank must be enshrined in cantonal law.
• The canton itself must hold a capital and voting stake in the bank of more than a third.

Cantonal Banks can differ from each other in terms of their legal and organizational structures, their size and their business policies. Each canton, as owner, decides on its Cantonal Bank’s legal and organizational form, ownership structure, roles and fields of business to suit the canton’s specific objectives.

Public sector institution or stock corporation
Cantonal law can set up Cantonal Banks as public sector institutions, or as special-law, mixed-economy or private-law stock companies.
If it decides the bank is to be a public sector institution, the canton provides the equity in the form of “endowment capital”. Some banks also have “participation certificate capital” so that private investors can take a (non-voting) stake in the bank. As well as earning a market interest rate on its endowment capital, the canton participates in the bank’s success in the form of an additional dividend.
Cantonal banks structured as stock corporations have capital stock, which is divided into shares. The canton itself usually holds the majority capital and voting interest. Like other stock corporations, these banks pay out some of their profits as dividends.