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

Nonetheless, there remain important vulnerabilities and challenges to financial stability: 
 
The Swiss economy is among the most interconnected in the world and is deeply exposed to 
volatility in the European Union (EU). Stresses in the euro area periphery led to “safe haven” 
flows to the Swiss franc, putting sustained upward pressure on the rate, which the authorities 
seek to counter through maintaining an exchange rate floor. 
 
Real estate bubbles appear to be emerging; with monetary instruments not available, 
macroprudential instruments are being introduced, but so far are limited and untested. 
 
While important progress has been made in addressing too-big-to-fail (TBTF) and too-big-to-
save (TBTS) issues, this is still a work in progress. 
 
Interest rates are negative at some maturities, threatening the business models of life 
insurance and pension companies. Temporary alleviation from the SST is in effect through 
2015. 

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SWITZERLAND
INTERNATIONAL MONETARY FUND
7 
It is therefore important to restore the momentum of the strong post-crisis financial sector 
reform agenda.
 
Switzerland initially sought to address banking sector vulnerabilities by establishing prudential 
standards tougher than its international peers. However, the early focus on regulatory bank 
capital has not been matched by equal focus on other measures of bank strength, particularly 
the leverage ratio. The two global banks are still significantly more leveraged than many other 
large international banks. 
 
Further tightening and expansion of macroprudential measures is warranted, and any 
mortgage interest subsidies phased out. 
 
International agreements on cross-border resolution of G-SIFIs are under discussion, but 
additional measures will be required to make resolution viable. Resolution powers of FINMA 
have been enhanced, but may not be quickly available for handling banks not pre-designated 
as systemically important financial institutions (SIFIs).
 
To further enhance the resolution framework, the deposit guarantee scheme (DGS) needs to be 
overhauled so that it is adequately funded, can finance measures other than bank closure if 
these are cheaper, and is simple for depositors to understand.
 
Careful preparations are needed for handling the implications for the life insurance industry of 
the phase-out of amelioration measures in the supervisory regime.
 
Also, the financial market infrastructures (FMIs) should comply with the new international 
standards, and crisis management arrangements should be established between the authorities 
of FMIs.