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

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INTERNATIONAL MONETARY FUND
Table 13. Switzerland: Risk Assessment Matrix (Concluded)
Switzerland 
Overall Level of Concern 
Nature/Source of Main Threats 
and Possible Triggers 
Likelihood of severe realization of threat 
sometime in the next three years 
Expected impact on financial stability if 
threat is realized 
Sharp correction in the housing 
market 
Medium 
Low interest rates and ample liquidity 
continue to drive prices higher. A price 
correction is likely once interest rates return 
to normal levels.
Medium 
A sharp correction in housing prices would 
weaken household balance sheets and slow 
down growth. The banking and insurance 
industries, both exposed to the mortgage 
market, would suffer. Domestically focused 
banks are particularly vulnerable, though they 
are well capitalized on average. 
Bond market stress from a 
reassessment in sovereign risk
Medium 
 
Japan: Abenomics falters, depressed 
domestic demand and deflation (short 
term), leading to bond market stress 
(medium term) 
Low 
 
United States: protracted failure to agree 
on a credible plan to ensure fiscal 
sustainability (medium term) 
Medium 
Global asset managers may maintain or further 
shift asset allocations to safe havens, including 
Swiss franc-denominated assets. Safe haven 
flows would put the currency under pressure 
again and possibly re-exacerbate pressures in 
the housing market. 
Risks to financial stability from 
incomplete regulatory reforms:
delays, dilution of reform, or 
inconsistent approaches (medium 
term) 
Medium 
Remaining uncertainties about the design of 
future global regulatory landscape and slow 
progress in reaching agreements on effective 
crisis resolution mechanisms continue to 
hinder developments of appropriate business 
models. 
Medium 
The banking sector is highly globally 
interconnected, and large banks are highly 
leveraged and dependent on wholesale 
funding. As such, they are a potential source of 
outward spillovers and vulnerable to inward 
spillover from instability in global financial 
markets. 
Increasing geopolitical tensions 
surrounding Ukraine lead to 
disruptions in financial, trade, and 
commodity markets 
Medium 
Doubts about whether Ukraine will 
consistently make timely commercial and 
financial payments, both internally and 
externally; financial and trade disruptions; 
contagion; a further slowdown in Russia; and 
uncertainty all trigger a re-pricing of risks and 
heightened volatility in financial markets. 
Medium 
The direct impact should be limited. However, 
contagion and heightened volatility in financial 
markets may trigger renewed safe haven flows. 

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SWITZERLAND
INTERNATIONAL MONETARY FUND