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ZURICH (Reuters) - Swiss bankers are on the defensive with their secretive industry under sustained attack for sheltering tax dodgers.

Zurich overtook Tokyo as most expensive according to a new ranking by the Economist Intelligence Unit because of the soaring Swiss franc. The currency is up 30 percent since 2008, despite a cap imposed last year by the central bank, because investors view it as a safe haven in global economic turmoil.

The same factors make the country's banks attractive despite the gradual erosion of bank secrecy: political stability and neutrality, low government debt and an economy which has been relatively resilient through the financial crisis.

Although Swiss banks - especially the country's biggest UBS have shared in the pain of the crisis, they have retained an image for solidity, particularly in contrast to their euro zone rivals, bolstered by new capital rules that are the world's strictest.

Information gleaned from a controversial Internal Revenue Service regulation that would require U.S. banks to report interest on deposits held by nonresident aliens could lay the groundwork for reciprocation as the United States continues its efforts to build cooperation with other countries to stop global tax evasion, IRS Commissioner Douglas Shulman told a House subcommittee March 21.

“This regulation lays the groundwork for some reciprocation” Shulman said at a hearing on IRS's fiscal year 2013 budget request before the House Appropriations Subcommittee on Financial Services and General Government.  

Shulman mentioned reciprocation in that context, but said such reciprocation would only occur with countries with which the United States already has tax treaties.

The commissioner stressed that the main goal of the nonresident alien bank deposit interest regulation is to collect the information. “We don't have the intention of endangering taxpayers.

Shulman said he worries that federal budget cuts could start to erode tax enforcement and voluntary compliance.