Switzerland: Financial Sector Stability Assessment; imf country Report 14/143; April 16, 2014

SYSTEMIC RISK SOURCES AND MITIGATION 
A. Contagion and Systemic Risk Sources 
38. Tests of contagion indicated that systemic risk originating in domestic banks is 
increasing, while other contagion risks are flat or declining (Figure 9). Various measures of 
financial stability, contagion risks, and systemic losses were quantified. The analysis of domestic 

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contagion involved the two large banks, two large insurance companies, five cantonal banks, and 
an important bank specialized in securities and asset management. The analysis of international 
contagion included both Swiss and international G-SIFIs. 
Figure 9. Switzerland: Marginal Contribution to Systemic Losses of
Swiss Financial Institutions 
(In percent) 
 
 
Source: IMF staff calculations. 
 
Cross-financial sector contagion within Switzerland 
39. Contagion risks arising from direct interbank exposures in Switzerland appear to be 
contained. Analysis covering the entire Swiss banking sector and assessing the impact of a 
hypothetical default of any one Swiss bank on the other banks shows only moderate effects, 
consistent with the prudential restrictions derived from the present large exposure rules. However, 
a few small private banks and banks specializing in asset management appear somewhat 
vulnerable. This analysis is limited since it only takes into account direct interconnectedness as 
measured by interbank exposures, while indirect linkages due to exposures to common risk factors 
are not covered. 
40. Systemic risk originating in domestically oriented banks is increasing. Market-based 
financial stability indicators, the marginal contribution to systemic risk (MCSR), and the 
Vulnerability Index (VI) suggest a heightened increase during the GFC in systemic risks from the 

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large Swiss financial institutions.
8
The MCSR for the large Swiss banks is still significant, due to the 
size of these institutions in the system, although this measure has decreased for one institution 
and remains stable for the other. In contrast, systemic risk from the domestically oriented banks 
seems to be increasing, many having increased significantly in size and having large exposures to 
real estate (Figure 9). Moreover, noticeable falls and increased volatility in some banks’ stock prices 
can be observed, likely triggered by a number of concerns, including U.S. investigations regarding 
tax avoidance.