It’s not every day that finance’s equivalent of the Matterhorn, with a branch on every street corner, crumbles. A former Swiss bank boss tells me that the collapse is a “shocking” indictment of distinctly un-Swiss empire-building, with its roots in the takeover of US investment bank First Boston.(1) That the Greensill debacle ensnared Credit Suisse as well as racy tech-investor SoftBank Group Corp. says something about the Swiss bank’s culture. Alfred Escher, Credit Suisse’s founder and symbol of the Swiss 19th-century railroad boom, is no doubt spinning in his grave.

Yet it’s only the latest chapter in Switzerland’s travails as a financial center since the  end of banking secrecy almost two decades ago. For most of the 20th century, the more wars, geopolitical risk and foreign-exchange controls there were around the world, the more the rich and powerful stashed their wealth in Swiss coffers. Bringing money in was akin to what one whistleblower called “social engineering with a profit margin.” The twin crises of 9/11 and Lehman Brothers changed things for good, with UBS bailed out and international pressure killing secrecy by a thousand cuts.

The result is that formerly prudent Swiss institutions — like Credit Suisse, believe it or not — have had to work harder and compete farther afield for business even as their home market is battered by regulatory fines and scandals. Between 2008 and 2017, over 50 Swiss bank brands disappeared, and the financial sector’s weight in GDP fell below 10% from 12% , according to author Yves Genier. A smaller and humbler Zurich dropped down the rankings of global financial centers, even as it clung to its pole position for offshore wealth, as Asia rose in prominence and relations with the European Union deteriorated. Despite Swiss attempts to compete with more flexible regulation, the country is attracting fewer multinationals than it used to, and is a tech laggard. Banking lawyer Carlo Lombardini says Swiss finance has suffered from “inertia”.

The big Swiss shrink is likely to continue, even if this looks somewhat at odds with the really-too-big-to-fail entity emerging in the Paradeplatz from the ashes of Credit Suisse. Even if domestic rivals like Banque Pictet & Cie SA or Julius Baer Group Ltd. win share from UBS-CS, a shift of assets to Asia is expected to see Hong Kong overtake Switzerland as the world’s largest offshore financial center by 2025, according to consulting firm BCG. The UBS takeover is also rife with uncertainty. Burned bondholders point to a persistent discount on Swiss banks’ debt; Axiom’s David Benamou says the structure of the rescue has been a real hit to the country’s reputation. Politicians are calling for tougher regulation to lessen the systemic risk UBS poses to the Swiss state. Job cuts look inevitable, while Middle-Eastern investors are turning their backs on banks.

Optimists argue that these are obstacles that can be overcome. Switzerland still has credibility in the form of the Swiss franc, and an inflation rate that’s half its big neighbors’. A smaller financial center is also a first-world problem: Zurich remains an incredibly wealthy and safe city, and the “horlogers” of Geneva still export their wristwatches like crazy. Professor David Bach, of the Swiss Institute of Management Development, also reckons the speed at which the Swiss authorities moved to halt the bleeding at Credit Suisse will help their reputation in the long run.

Yet the real turning point may be geopolitical. Bern has been under pressure from Brussels over its bilateral framework of access to the EU single market, with the Old Continent wanting more regulatory harmonization. The US, meanwhile, hasn’t minced its words over Swiss neutrality amid the war in Ukraine, as Bern  blocks partners from supplying Kyiv with Swiss-made ammunition. With fresh cracks appearing in Swiss finance, it’s likely that international pressure will keep growing — with more likelihood that the days of anonymity and neutrality are numbered.

This doesn’t have to be fatal for Switzerland’s financial center. But it offers a stark potential choice between a future as a less-central financial outpost or one more integrated to an onshore base like the EU — think Luxembourg. If Asterix met Zurix today, he’d find someone very different.

More From Bloomberg Opinion:

Ireland’s Fairytale Economics Threaten a Spooky Ending: Lionel Laurent

Credit Suisse and the Crazy, Rich, Anxious Asians: Shuli Ren

UBS Needs to Act Swiftly to Repair Its Capital Issue: Marcus Ashworth & Paul J. Davies

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(1) Disclaimer: Two decades ago, I interned briefly at Credit Suisse First Boston in Tokyo. It was the start and end of what would have obviously been a glittering career in finance.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Lionel Laurent is a Bloomberg Opinion columnist covering digital currencies, the European Union and France. Previously, he was a reporter for Reuters and Forbes.

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