16
INTERNATIONAL MONETARY FUND
21. Some cantonal banks have become larger than their guarantor, raising doubts about
the credibility of their guarantees. Many cantonal banks are backed by explicit guarantees from
the cantons. The funding advantage can incentivize risk-taking behavior and support international
expansion. In some cases, those guarantees may put the local finances at risk, as the guarantee
accounts for a multiple of the cantonal GDP (Zurich, Luzern, and Basel Stadt). Cantons should be
encouraged to phase guarantees out.
22. In the large financial cooperatives, certain governance aspects can also be
problematic. Switzerland contains large systemic cooperative groups (in aggregate the third
largest bank, by size) that apply caps on ownership and voting rights, which reduces members’
ability to exert effective oversight over management and hinders access to external capital. Capital
ratios of this category of bank have remained stable or declined over the period. These banks have
pursued a very high pace of real estate lending growth since 2008, exposing them to any falls in
the Swiss housing market
Private banking
23. Private banking is a key element of the Swiss financial system. Switzerland’s financial
institutions leads in terms of assets under management worldwide. UBS and CS have the first and
fifth largest value of assets under management of any bank in the world, respectively (Figure 6).
The Swiss Bankers’ Association reports that in off-shore private banking.
5
Switzerland ranks first,
before Hong Kong, Singapore, and the United Kingdom, managing one-quarter of the world’s
wealth. Private banking accounts for about half of the Swiss banking sector’s total revenues.
24. The business model of private banking is challenged by the uncertainties related to
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