The Risks Hidden In Multiple Banking Relationships

Several banking relationships can look like prudent diversification. For international families, they often are. One bank may provide custody and discretionary management, another may offer lending, a third may have a long-standing relationship with the principal, while a fourth gives access to a particular jurisdiction, currency or private-market opportunity. After the loss of Credit Suisse as an independent institution, many private clients also became more conscious of counterparty concentration and the need not to depend too heavily on one name.

The difficulty is that multiple banks can create a different kind of concentration: not in one institution, but in the family’s inability to see the combined position clearly. Each bank reports the assets it holds. Each has its own classification system, fee schedule, investment language, custody arrangements and credit terms. One may describe a position as alternatives, another as private markets, another as structured solutions. One relationship manager may discuss liquidity only within the portfolio held at that bank, while another assumes the family has sufficient cash elsewhere. A product may appear diversified inside one mandate but duplicate exposure already held through another institution.

For families using Switzerland as a wealth-management hub, this question is particularly relevant. Switzerland remains one of the world’s largest centres for cross-border private wealth. Banks in the country managed CHF 9.284 trillion in assets at the end of 2024, after assets under management rose by 10.6 percent during the year. The same market offers depth, choice and institutional expertise, but that abundance can also make it easier for private clients to build a banking architecture that has grown historically rather than strategically.

Multiple relationships should therefore be reviewed not as a sign of sophistication in themselves, but as a structure that needs governance.

Diversification Is Not The Same As Fragmentation

There are good reasons to maintain more than one private bank. Counterparty diversification is one. No family office wants all custody, cash, lending and administration dependent on a single institution. Different banks may also have different strengths: one may be particularly strong in Lombard lending, another in investment research, another in private-market access, while another is retained for transactional convenience or a long-standing family relationship.

That is all reasonable. The issue is whether each relationship has a defined function. Without that discipline, banking diversification becomes fragmentation. The family receives several polished reports but no consolidated view. Fees are assessed bank by bank rather than at family level. Private-market offers are considered individually rather than against total commitments. Lending is negotiated separately, while no one sees how much of the family’s liquid portfolio is pledged across institutions.

A useful test is simple: if each bank disappeared from the structure tomorrow, what function would be lost? Custody, credit, investment management, geographic access, transaction banking, family continuity, private-market sourcing or something else? If the answer is vague, the relationship may be historical rather than strategic.

Switzerland Offers Choice, But Also Requires Role Clarity

The Swiss banking market remains broad, even after consolidation. The Swiss National Bank reported that the number of banks in Switzerland declined from 236 to 230 in 2024, while the Swiss Bankers Association noted that almost 100 foreign-controlled banks operate in the country. For international families, that creates a wide range of possible relationships: universal banks, cantonal banks, private banks, foreign-controlled banks, external asset managers working with custodian banks and specialist providers.

Choice is valuable, but it can encourage accumulation. A family may retain one bank because of legacy, another because of a senior relationship manager, another because it was introduced by a lawyer, and another because it offered attractive lending during a property transaction. Over time, the structure may no longer reflect the family’s current residence, asset base, governance needs or next-generation plans.

The Swiss context makes this especially important because many private clients use Switzerland as a central booking or advisory hub while keeping assets, companies, heirs and obligations elsewhere. A Swiss banking relationship may be central to the family’s financial life, but it may still show only the bankable assets held within that institution.

The annual review of banks should therefore ask: what role does each relationship play in the overall architecture, and who sees the combined result?

The First Hidden Risk: Duplicated Exposure

Each bank can present a diversified portfolio. The family may still be concentrated.

This is one of the most common weaknesses in multi-bank structures. A global equity fund at one bank, a discretionary mandate at another, a technology-heavy structured product at a third and a private-equity fund with exposure to similar companies may all be reasonable in isolation. Together, they may create significant exposure to the same sector, region, currency or market factor.

The problem becomes more subtle when products use different labels. A bank may classify a structured note as yield enhancement, while another shows a similar economic exposure within alternatives. A private-market fund may hold businesses in the same sector as the family’s operating company. A thematic fund may duplicate positions already present in global equity indices.

This is why consolidated reporting matters. The family needs to see exposure by issuer, sector, region, currency, manager, strategy and liquidity, not only by banking relationship. Without that view, diversification may be more aesthetic than real.

The purpose is not to eliminate overlap entirely. Some overlap is inevitable and acceptable. The point is to know when overlap is deliberate and when it has simply accumulated.

The Second Hidden Risk: Liquidity That Exists In Theory

Multiple banks can make liquidity look more abundant than it is.

One bank may show a large securities portfolio. Another may hold cash. A third may provide a credit line. The family may therefore feel well positioned. But once pledged assets, tax reserves, private-market commitments, property expenses, expected distributions and credit covenants are taken into account, usable liquidity may be narrower.

This is particularly important when Lombard lending is used. A portfolio pledged to one bank may be technically liquid but practically constrained. If markets fall, the bank may require additional collateral, reduce lending capacity or ask the client to deleverage. A family that has pledged assets across several banks needs to know not only the size of each facility, but the combined sensitivity to market stress.

Private-market commitments add another layer. Capital calls can arrive when public markets are weak and liquidity is least convenient. If each bank sees only its own portfolio and no one maintains the total liquidity calendar, the family may commit to more illiquid investments than the broader balance sheet can comfortably support.

The right question is not simply, “How much do we have in liquid assets?” It is, “How much can be used within thirty, ninety and 365 days without creating tax, credit or governance pressure?”

The Third Hidden Risk: Fees That Are Reviewed In Isolation

Private banking costs are rarely contained in one line. Custody fees, advisory or discretionary-management fees, fund costs, structured-product margins, foreign-exchange spreads, transaction charges, credit spreads and cash remuneration all affect the total result.

When a family uses several banks, fees are often negotiated relationship by relationship. One bank may appear competitive on custody but expensive on foreign exchange. Another may offer attractive lending but use higher-cost investment products. A third may provide excellent service but hold a small account whose fees no longer make sense.

The family therefore needs a total cost review. This should show what each bank costs in absolute terms and what function it performs. A higher-cost relationship may be justified if it provides valuable credit, specialist access or institutional continuity. A lower-cost relationship may still be unattractive if it creates operational complexity without a clear role.

The review should also examine retrocessions, fund share classes, cash rates and product incentives. The objective is not to assume that every bank recommendation is conflicted. It is to ensure that commercial incentives are visible and understood.

The Fourth Hidden Risk: Credit Arrangements That Do Not Speak To Each Other

Credit is one of the main reasons families maintain several banking relationships. A bank may finance a property, provide a Lombard facility, support an investment transaction or offer liquidity against a diversified portfolio. Used well, credit can reduce the need to sell assets at an inconvenient time.

Used without a consolidated view, it can also create hidden fragility.

Each bank may assess collateral within its own relationship. The family, however, needs to understand total leverage across all institutions. How much is borrowed? Which assets are pledged? What happens if market values decline by 20 percent? Are covenants linked to asset values, loan-to-value ratios, liquidity or concentration? Are there cross-default provisions? Which facilities mature within the same period?

A family with several credit lines may feel diversified because no single bank provides all lending. Yet if all facilities are secured against correlated market assets, a stress event can affect them simultaneously.

The credit map should sit beside the asset map. It should show lender, borrower, collateral, currency, maturity, interest terms, covenants, margin-call mechanics, signatories and the family decision required before drawing further credit.

The Fifth Hidden Risk: Cash Protection Is Misunderstood

Cash and securities are not the same from a protection perspective. In Switzerland, depositor protection covers privileged deposits up to CHF 100,000 per client and bank. Securities held in custody are treated differently from deposits; they are generally segregated from the bank’s bankruptcy estate rather than being protected under the deposit-insurance limit.

For private clients, the practical point is not that Swiss banks are unsafe. It is that cash, securities, bank-issued products and structured instruments should not be treated as identical exposures.

Several bank relationships may reduce excess cash held at one institution, but only if the family understands what is actually held as cash, what is invested in custody assets, what represents a claim on the issuing bank and what is pledged as collateral. A structured note issued by a bank is not the same as an externally held equity fund in custody. A cash deposit above the protected threshold is not the same as segregated securities.

This distinction became more visible after the Credit Suisse crisis. FINMA’s report on Credit Suisse examined the bank’s development from 2008 to 2023 and drew lessons around strategy, risk management and crisis preparation. The UBS-Credit Suisse merger brought stability to the Swiss financial centre, but it also reminded private clients that bank selection, concentration and legal character of assets deserve attention.

The lesson is not to distrust banks. It is to understand exposures properly.

The Sixth Hidden Risk: Relationship-Manager Dependency

Private banking remains a relationship business. A strong relationship manager can be extremely valuable: responsive, discreet, institutionally knowledgeable and able to access specialists inside the bank. But when the family’s understanding of a banking relationship depends too heavily on one person, continuity risk appears.

Relationship managers move. Banks reorganise client segments. Teams change after mergers. Service models evolve. What once felt like a highly personal relationship may become less stable if the individual leaves or the bank changes strategic focus.

A multi-bank structure can reduce dependency on one institution, but it can also create dependency on several individual bankers, each holding a different part of the family’s history. If the family does not keep its own records, the institutional memory sits outside the family.

The annual review should therefore ask who inside each bank knows the relationship, who provides backup, what is documented and what would happen if the main contact left. A mature banking structure should survive personnel changes.

The Seventh Hidden Risk: No One Owns The Combined View

The most important question is who coordinates the banking architecture. It may be an internal family-office executive, a multi-family office, an external asset manager, a consolidated-reporting provider, a trusted adviser or a financially experienced family member supported by professionals. Someone should know which bank does what, which assets are held where, which portfolios overlap, which facilities are pledged, which mandates are discretionary, which are advisory and which documents govern each relationship.

Without that coordination, the family becomes the only integration point. This may work while the principal is deeply involved. It is less reliable when the next generation becomes more active, the principal delegates, or a market event requires quick decisions.

A consolidated quarterly report is useful, but it is not enough. The coordinator should also maintain a banking-role map, fee review, credit overview, liquidity calendar and unresolved-issues list. If a bank proposes a new product, the coordinator should be able to assess it against the total family position rather than the portfolio at that institution alone.

What The Annual Banking Review Should Ask

A good review of multiple banking relationships should be specific.

What role does each bank play? What assets are held there and why? Which mandates are discretionary, advisory or execution-only? What is pledged? What cash is held and in which currency? What are the total fees and product costs? Which exposures overlap with other banks? Which private-market commitments are associated with each relationship? What credit facilities exist, and how would they behave under market stress? Which relationship depends too heavily on one individual? Which accounts or mandates no longer serve a clear function?

The review should also decide what to do. Keep the relationship as it is, renegotiate fees, reduce overlapping exposures, move a function to another bank, close a dormant account, separate lending from investment management, improve consolidated reporting or assign a clearer role to the relationship.

The outcome should not be a vague sense that the family is “well diversified”. It should be a documented banking architecture.

What Good Looks Like

A well-managed multi-bank structure is not necessarily smaller. It is clearer. Each bank has a purpose. The family sees total exposure across institutions. Fees are reviewed in aggregate. Liquidity is understood after pledging, commitments and tax reserves. Credit facilities are mapped. Cash and custody assets are distinguished. Product overlap is visible. Relationship-manager continuity is documented. One person or office owns the combined view.

For international families using Switzerland as a hub, this discipline allows the strengths of Swiss private banking to be used properly. Switzerland offers depth, expertise and institutional choice. The benefit is greatest when those relationships are organised around the family’s full position rather than allowed to grow into parallel silos.

Multiple banking relationships can be prudent. They become risky when diversification is assumed rather than governed. The goal is not to have more banks. It is to know exactly why each one is there.