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### EXECUTIVE SUMMARY — Background and Key Developments
- Since the previous FSAP, the Swiss financial system faced turbulence from the COVID 19 pandemic, regional conflicts, and the collapse of its second largest G-SIB in 2023.
- The acquisition of CS by UBS was facilitated by significant fiscal contingent liabilities and exposed gaps in the TBTF framework, supervision, resolution, and crisis management frameworks.
- Progress since 2019 FSAP: modest. Improvements in asset management legislation and supervision, fintech data collection, FMIs legislation, and targeted supervisory tool upgrades; persistent issues remain in FINMA’s legal powers, resources, reliance on external regulatory audits, macroprudential tools, and financial safety net gaps.
- Federal Council reforms (June 6, 2025) propose enhancements to the TBTF regime; many measures lack detail and will take years to implement.

### Systemic Risk Analysis — Resilience and Stress Test Findings
- Forward-looking stress tests indicate resilience of the Swiss financial sector:
  - Under a severe supply shock scenario, most banks, including all SIBs, remain above regulatory hurdles.
  - Two asset management and four small banks would experience a combined Core Equity Tier 1 (CET1) capital shortfall of 0.4 percent of GDP.
  - The stressed average CET1 ratio declines by 5.9 percentage points to 11.1 percent.
  - Aggregate sample of 92 banks: capital ratio drops by about 6 p.p. to the low point in Year 2.
  - SIBs’ aggregate CET1 ratio drops by 6.3 percentage points, but all SIBs remain above the hurdle rates.
  - Five of 92 banks fall below the CET1 hurdle rate by the third year; six banks (combined assets of 4.6 percent of banking system assets at end-2024) fall short on total capital ratios.
- Main loss drivers (cumulative to Year-3, supply shock, relative to baseline):
  - Net loan losses: 4-percentage point decline.
  - Fees and commissions income: -2.2 pp.
  - Trading income: -1.7 pp.
  - Net interest income: -1.4 pp.
- Liquidity risks:
  - Appear limited overall, though some small regional banks exhibit vulnerabilities.
  - Under stress: 10 out of 92 banks face liquidity shortfall within 30 days; extending to 6 months and severe assumptions, 19 banks projected to experience liquidity shortfalls, majority small regional banks.
  - Liquidity shortfall of failing banks accumulates to 0.15 percent of initial liquid assets of all banks.
- Insurance and pension stress tests:
  - Median SST ratio declined from 255 percent pre-stress to 219 percent post-stress; no insurer fell below the regulatory minimum.
  - Sample’s SST ratio fell by almost 60 percentage points in a severe market stress sensitivity; balance sheet shrank by CHF 180 billion; loss in equity nearly CHF 60 billion.
  - Pension funds achieved a median yield of 4.5 percent and maintained a positive contribution–benefit balance.
- Interconnectedness:
  - Network and default simulations show SIB defaults would trigger large domestic interbank spillovers, particularly affecting cantonal banks; cantonal banks exhibit highest vulnerability to spillovers.
- Climate risk:
  - Physical flood risk scenario (RCP 8.5, nine acute flood scenarios plus chronic damage) finds insurance transfer mechanisms mitigate losses.
  - A 57 percent increase in the annual average flood risk by mid-century estimated to raise building insurance expenditures, increasing PDs by 6 basis point and reduce the aggregate capital ratio by 4 basis point.

### Macrofinancial Conditions and Outlook
- Macroeconomic performance:
  - 2024 GDP expanded by 1.3 percent y-o-y.
  - Inflation dropped to 0.1 percent in June 2025, from one percent in 2024.
  - GDP growth projected to reach 1.3 percent in 2025 (adjusted for sporting events).
  - Notable downside risks: persistent global economic uncertainty, rising geopolitical tensions, volatile energy prices, and uncertainty over trade policies.
- Monetary and rates outlook:
  - The SNB lowered its policy rate to zero in June 2025.
  - SNB projects inflation at 0.2 percent for 2025 and 0.5 percent for 2026.
  - Market expectations point to a return to negative policy rates by year-end.
- Housing and credit:
  - Domestic credit grew by 2.3 percent in 2024.
  - Mortgage growth reached 2.8 percent in 2025 Q1.
  - Owner-occupied and single-family home prices grew by nearly 4 percent.
  - Estimates of house price overvaluation: valuation metrics about 30 percent above historical average; econometric models 20–25 percent; SNB estimates apartment prices overvaluation around 15–40 percent.
  - Real estate lending accounts for 86 percent of loans; about 20 percent of real estate exposure is at variable rates.

### Financial Sector Structure and Key Statistics
- Sector scale:
  - Total financial sector assets close to ten times the country’s GDP.
  - Banks assets close to 420 percent of GDP.
  - UBS total assets now comprise 167 percent of GDP, 45 percent of banking sector assets, 23 percent of total mortgages, and 25 percent of domestic deposits (post-acquisition of CS).
  - UBS is the only Swiss G-SIB.
- Insurance:
  - Premiums close to 18 percent of GDP.
  - Total assets close to 90 percent of GDP.
  - Five largest life insurers: 80 percent market share; five largest non-life insurers: 67 percent market share.
- Pension funds:
  - Assets around 140 percent of GDP; more than 1,300 institutions; most plans defined-contribution.
- Asset management:
  - Swiss asset managers manage around CHF 7.8 trillion.
  - CHF 1.3 trillion in collective assets.
  - CHF 1.9 trillion in discretionary mandates.
- Selected macro figures (selected exact figures from Table 2):
  - Real GDP (Percent Change): 2024 1.4; 2025 0.9; 2026 1.3.
  - Nominal GDP (billions of Swiss francs): 2024 825.6; 2025 834.5; 2026 850.2.
  - Consumer price index (period average): 2024 1.1; 2025 0.1; 2026 0.6.
  - Unemployment rate (in percent): 2024 2.4; 2025 2.9; 2026 3.1.
  - General government gross debt (Percent of GDP): 2024 37.5; 2025 36.9; 2026 36.1.
- Bank FSIs (selected exact figures from Table 3):
  - Regulatory Tier I capital as percent of risk-weighted assets: 2024 19.0.
  - Liquidity Coverage Ratio: 2024 181.8.
  - Non-performing loans as percent of gross loans: 2024 0.8.
  - Return on Assets: 2024 0.6.

### Financial Supervision — Legal Limits and Capacity Needs
- Legal constraints on FINMA:
  - Supervisory decisions automatically suspended if institutions file appeals.
  - FINMA can only issue binding prudential standards in specific legally indicated areas.
  - Restrictions on conducting onsite inspections (especially in smaller banks).
  - Cannot impose fines on supervised institutions or individuals.
  - Overreliance on external regulatory audits.
- Recommended legal changes:
  - Exempt FINMA supervisory decisions from automatic suspension when appealed.
  - Grant FINMA comprehensive early intervention powers applicable to all banks, onsite inspection authority, broad Pillar 2 powers, and ability to address governance failures.
  - Enable FINMA to issue binding prudential standards and circulars providing clear supervisory expectations.
  - Empower FINMA to impose administrative fines on institutions and individuals.
- Capacity and audit reforms:
  - Increase FINMA staffing and direct risk-based supervision across governance, risk management, market conduct, AML/CFT, cyber risk, and recovery/resolution.
  - Allow FINMA to fully mandate, oversee, and pay for external regulatory auditors; reduce reliance on them.

### Securities Markets, Asset Management, Insurance, Pension, and Cyber/AML
- Securities and asset management:
  - Two new acts since 2020 improved licensing and collective investment regime, but substantial data gaps remain.
  - Recommendations: strengthen market monitoring, reporting, and adopt FSB/IOSCO liquidity risk management standards for open-ended funds.
- Insurance and pensions:
  - Insurance regulation broadly robust; SST is sophisticated.
  - Recommendations: increase FINMA engagement on conduct, apply suitability review to heads of control functions, require recovery and resolution planning for IAIGs and designated groups.
  - Pension funds: need more granular and standardized data; cantonal supervisors require authority/tools to intervene.
- Cyber risk:
  - Recent legal and supervisory reforms since 2020; NCSC established.
  - Recommendation: extend cyber and outsourcing regulations to all financial institutions and external service providers; enhance incident reporting and testing; reinforce staff at FINMA, SNB, NCSC.
- AML/CFT:
  - Implement Registry of Beneficial Owners; extend obligations to gatekeepers (lawyers, accountants, etc.).
  - Enhance supervisory guidance, monitoring of cross-border and virtual assets risks.

### FMIs, Fintech, DLT, and Crypto
- FMIs:
  - SIX Group AG provides a full range of trading and post-trade services including SIX Stock Exchange, RTGS, CCP, CSD, SSS, SDX, and the SIX Repo Trading Platform.
  - SIX Stock Exchange free float market capitalization around CHF 1.4 trillion (175 percent of GDP).
  - Recommendation: increase direct oversight by FINMA and SNB, collaborate with foreign authorities, ensure CCP and CSD retain independent risk management capacities.
- Fintech, DLT, crypto:
  - SDX live since 2021; Project Helvetia pilot with wCBDC progressed to live environment; BX Digital DLT trading facility licensed in 2025.
  - 2019 fintech license: accept public deposits up to CHF 100 million or crypto assets.
  - Number of crypto service providers reached 40 in 2024.
  - Custodial accounts: CHF 13.9 billion in crypto assets.
  - Reported crypto holdings by Swiss banks: CHF 1,983.5 billion and CHF 9,782.5 billion, respectively, at end-2024 (note: source text lists two large figures—preserve exactly as presented).
  - Prudential regulation applies capital charges only to on-balance sheet exposures (800 percent risk weight).
  - Recommendation: comprehensively assess banks’ crypto asset exposures and implement Basel prudential standard for crypto; develop governance for open finance; establish formal stakeholder collaboration platform.

### Macroprudential Framework — Risks and Policy Recommendations
- Current toolset:
  - Only dedicated macroprudential tool is sectoral Countercyclical Capital Buffer (CCyB), raised to legal maximum of 2.5 percent in 2022.
  - No borrower-based measures in place; self-regulation via SBA for mortgage lending (LTV caps, amortization) lacks formal income-based affordability benchmarks (DSTI).
- Vulnerabilities:
  - Sectoral CCyB reached upper ceiling and appears insufficient to mitigate rising systemic risks.
  - Signs of risk build-up: stretched housing valuations, loosening underwriting standards, historically high household debt relative to GDP.
- Recommended macroprudential enhancements:
  - Introduce a binding debt-service-to-income (DSTI) cap; a 30 percent DSTI cap:
    - Reduces PD impact of severe supply-shock scenario on mortgage loans by 33 percent.
    - Corresponds to reduction in capital impact by 37 bps for the system.
    - Primarily affects high LTI mortgage lending and investment-property lending; more binding for variable-rate mortgages.
  - Remove ceiling on CCyB and adopt a positive neutral setting for CCyB.
  - Introduce a capital-based instrument separate from the CCyB to address remaining systemic risks.
  - Establish a formal Systemic Risk Council—led by SNB and comprising FINMA and FDF—with clear mandate, procedures, and accountability.

### Financial Safety Net, Resolution, and Crisis Management
- Crisis history and fiscal exposure:
  - 1990s Cantonal banks’ crisis: Geneva canton recapitalization cost CHF 2.1bn; cantonal burdens could be large relative to canton budgets.
  - 2008 UBS rescue: transfer of CHF 45.9 billion to StabFund plus CHF 6 bn federal capital injection.
  - 2023 CS crisis: acquisition by UBS backed by CHF 168 bn (SNB ELA, ELA+, and PLB); CHF 9 bn federal loss protection guarantees for a specific portfolio; contingent fiscal liabilities of 20 percent of Swiss GDP; fully recovered by mid-2024.
- Early intervention and resolution:
  - FINMA’s early intervention powers are severely constrained and should be immediately addressed.
  - Require all banks to prepare proportionate recovery plans.
  - Extend resolution planning beyond SIBs to Category 3 banks, designated insurance groups, and FMIs pending expanded FMI legislation.
  - Remove legal barriers to bail-in tools and broaden resolution tools and planning.
- ELA and PLB:
  - SNB’s Extended Liquidity Facility (ELF) is a step toward comprehensive ELA.
  - Recommendations: authorize SNB to require banks to prepare collateral; operationalize and communicate comprehensive ELA framework; adopt a Public Liquidity Backstop (PLB) to formalize government backup for ELA for SIBs and non-SIBs whose failure could be systemic.
- Deposit insurance and funding:
  - Remove legal cap of 1.6 percent of insured deposits on banks’ contributions; introduce ex-ante fund with government back-up and broaden DIS to a public DIA over time.
- Crisis preparedness:
  - Establish national contingency plan; conduct regular multi-agency and cross-border crisis simulations; significantly expand FINMA recovery and resolution staffing.

### FSAP Key Recommendations (selected; timing codes preserved)
- Systemic Risk Analysis
  - Improve data collection on mortgage exposures, trading investment portfolios, Lombard loans, and bilateral exposures (beyond banks). — FINMA/SNB, MT
  - Enhance solvency stress test model and develop a liquidity stress test model. — SNB, MT
  - Develop dataset and regularly collect data on pension funds. — OPSC, MT
- Cross-Cutting Regulation and Supervision
  - Exempt FINMA’s supervisory measures from automatic suspension in the event of legal appeals and introduce FINMA’s power to levy fines. — FDF, I/ST
  - Enable FINMA to issue binding prudential standards and circulars with clear supervisory expectations. — FDF, ST
  - Increase FINMA supervisory staff and intensify direct risk-based supervision. — FINMA, ST
  - Enable FINMA to fully mandate, oversee, and pay for external regulatory auditors. — FDF/FINMA, MT
- Banking Sector
  - Expand and strengthen FINMA’s legal powers (to all banks) in early intervention, onsite examinations, Pillar 2 capital add-ons, governance failures; introduce a Senior Manager’s Regime. — FDF, FINMA, I/ST
- FMIs and Fintech
  - Increase direct oversight of FMIs and collaboration with foreign authorities. — FINMA, SNB, I
  - Assess banks’ crypto assets exposures comprehensively and implement Basel’s crypto prudential standard. — FDF, FINMA, ST
  - Develop governance structure for open finance. — FDF, MT
- Macroprudential Framework and Policies
  - Introduce a binding DSTI cap, remove the ceiling on the CCyB, adopt a positive neutral setting for the CCyB, and introduce a capital-based instrument separate from the CCyB. — FDF, FINMA, SNB, I/ST
  - Establish a formal Systemic Risk Council including SNB (lead), FINMA, and FDF. — FDF, FINMA, SNB, MT
- Financial Safety Net and Crisis Preparedness
  - Develop clear early intervention framework and adopt a PLB to formalize government backup to ELA. — FDF, SNB, I
  - Expand recovery and resolution planning to all banks and Category 3 banks and above; increase resolution staffing. — FDF, FINMA, ST
  - Operationalize the ELA framework; enable SNB to ask banks to prepare collateral. — SNB, FDF, ST
  - Remove legal cap on banks’ contributions to esisuisse and introduce an ex-ante fund with government back-up. — FDF, MT

### Stress Test Frameworks and Methodologies (Appendices I–IV)
- Banking solvency STeM:
  - Institutional perimeter: 92 banks, consolidated, covering 93 percent of banking system assets; cut-off: end-December 2024.
  - Model: dynamic balance sheet, structural and econometric components for PD/LGD, interest pass-through, market risk via modified duration; STA and IRB treatment as specified.
  - Scenarios: Baseline (IMF WEO, end-February 2025 vintage) and two adverse scenarios (demand-driven disinflationary; supply-driven inflationary).
  - Horizon: 3 years (2025–2027).
- Banking liquidity STeM:
  - Cash flow-based liquidity stress test with liquidity–solvency feedback, LCR in CHF and significant currencies, NSFR monitoring; Basel III LCR at 100 percent.
- Insurance STeM:
  - Six groups (Baloise, Helvetia, Mobiliar, Swiss Life, Swiss Re, Zurich); reference date December 31, 2024.
  - Bottom-up and top-down approaches; market shocks and cyber scenarios included.
- Climate STeM:
  - Mortgage-focused micro-macro simulation linked to climate projections; horizon 3 years (2025–2027) and consideration of 2050/2100 conditions.
- Interconnectedness:
  - Uses domestic interbank exposures, BIS cross-border data, and SWIFT flows; applies EVS contagion simulations and network metrics.

### Authorities’ Views
- Authorities broadly concurred with main recommendations and the finding that the financial system would withstand severe downturn scenarios.
- Authorities noted the CS–UBS merger highlighted need to strengthen regulation and supervision and prompted ongoing TBTF revision.
- Authorities cautioned that legislative processes take time and considered some shortcomings overstated; they noted FINMA’s operational independence and ongoing supervisory intensification.

*Source: Switzerland — FSAP Executive Summary and selected chapter excerpts (INTERNATIONAL MONETARY FUND).*

### EXECUTIVE SUMMARY____________________________________________________________________________ 7

### EXECUTIVE SUMMARY

### Background
- Since the previous FSAP, the Swiss financial system faced turbulence from the COVID 19 pandemic, regional conflicts, and the collapse of its second largest G-SIB in 2023.
- The acquisition of CS by UBS was facilitated by significant fiscal contingent liabilities and exposed gaps in the TBTF framework, supervision, resolution, and crisis management frameworks.

### Systemic Risk Analysis: Reinforcing Resilience
- Forward-looking stress tests indicate resilience of the Swiss financial sector:
  - Under a severe supply shock scenario, most banks, including all systemically important banks (SIBs), remain above regulatory hurdles.
  - Two asset management and four small banks would experience a combined Core Equity Tier 1 (CET1) capital shortfall of 0.4 percent of GDP.
  - The stressed average CET1 ratio declines by 5.9 percentage points to 11.1 percent.
  - Losses are concentrated in mortgage books, fees and commissions, trading activities, and net interest income.
- Liquidity risks:
  - Appear limited overall, though some small regional banks exhibit vulnerabilities.
  - Liquidity stress testing and enhanced liquidity models are recommended (see Table 1 recommendations).
- Interconnectedness and insurance:
  - Interconnectedness analyses indicate SIBs exert large spillovers in the event of default, primarily affecting cantonal banks.
  - Insurers demonstrate resilience to severe solvency and liquidity shocks.
- Climate risk:
  - Under adverse climate physical risk scenarios, banks benefit from insurance transfer mechanisms that mitigate losses.
- Data and model improvements:
  - Improve data collection on mortgage exposures, trading investment portfolios, Lombard loans, and bilateral exposures (beyond banks) to enhance risk analysis.
  - Enhance solvency stress test models (including risks relevant for asset managers, micro data on households and firms); develop a liquidity stress test model.

### Financial Supervision: Enhancing the Ability and Willingness to Act
- Legal and powers enhancements for FINMA:
  - FINMA’s supervisory powers in the banking sector remain significantly limited relative to most international peers.
  - To align with best practices, FINMA should be granted:
    - comprehensive early intervention powers applicable to all banks;
    - ability to conduct onsite inspections as deemed necessary;
    - broad, clearly defined and forward-looking Pillar 2 powers; and
    - ability to address governance failures.
  - FINMA’s supervisory decisions should be exempted from automatic suspension in the event of legal appeals.
  - FINMA should be able to issue binding prudential standards across all relevant areas and circulars that provide clear supervisory expectations.
- Supervision intensity and resources:
  - Financial supervision must become more hands-on, requiring increased staffing and reduced reliance on external regulatory audits.
  - Additional staffing and increased direct engagement with the industry are needed, particularly in corporate governance, risk management, market conduct, AML/CFT, cyber risk, and recovery and resolution.
  - Enable FINMA to fully mandate, oversee, and pay for external regulatory auditors, and reduce reliance on external regulatory auditors.
- Cross-sectoral and conduct improvements:
  - Strengthen mechanisms to prevent, detect, and enforce market abuse.
  - Insurance supervision would benefit from more direct conduct oversight.
  - Cantonal pension funds supervisors need authority and tools to intervene.
  - Cyber risk regulations should extend to all financial institutions and external service providers, together with enhanced incident reporting and testing.
  - Rollout of the Registry of Beneficial Ownership should be expedited, and the legal framework extended to gatekeepers (e.g., lawyers, accountants).
  - Address data gaps in asset management, secondary markets, cross-sectoral bilateral exposures, and pensions.

### Financial Market Infrastructures (FMIs) and Fintech
- Oversight and coordination:
  - Given the international expansion of the SIX Group, FINMA and the SNB need to intensify supervision and collaborate closely with relevant foreign authorities.
  - The Central Clearing Counterparty (CCP) and Central Securities Depository (CSD) should retain capacities to manage risks independently from the group.
- Crypto and open finance:
  - Authorities should remain agile in adapting oversight of regulated firms offering crypto services domestically and internationally, including by implementing the Basel Committee crypto standard.
  - Establish a formal platform for collaboration among stakeholders for open finance.
- Operational recommendations:
  - Increase direct oversight of FMIs and collaboration with foreign authorities.
  - Assess banks’ crypto assets exposures comprehensively and implement the Basel prudential standard in a faithful and timely manner.
  - Develop a governance structure for open finance.

### Systemic Risk Oversight: Leaning Against the Wind
- Real estate and household vulnerabilities:
  - Systemic risks from the real estate market are rising.
  - The sectoral Countercyclical Capital Buffer (CCyB) has reached its upper ceiling of 2.5 percent and appears insufficient to mitigate rising systemic risks.
  - Signs of risk build-up include stretched housing market valuations, widespread loosening of underwriting standards, and historically high household debt relative to GDP.
  - Monetary easing and cantonal initiatives to improve affordability for new borrowers may lead to further risk build-up.
- Recommended macroprudential policy enhancements:
  - Introduce a binding debt-service-to-income (DSTI) cap.
  - Remove the ceiling on the CCyB and adopt a positive neutral setting for the CCyB.
  - Introduce a capital-based instrument separate from the CCyB to address remaining systemic risks.
  - Establish a formal Systemic Risk Council—led by the SNB and comprising FINMA and the FDF—with a clear mandate, procedures, and accountability to review and propose measures to mitigate systemic risks.

### Financial Crisis Management: Casting a Wider Safety Net
- Early intervention, recovery, resolution, and crisis planning:
  - Establish a clear intervention framework with sufficiently early and forward-looking triggers, adequate tools, and enforcement mechanisms.
  - Require all banks to prepare proportionate recovery plans.
  - Extend resolution planning beyond SIBs to include Category 3 banks, designated insurance groups, and FMIs, pending the enactment of expanded FMI legislation.
  - FINMA, the SNB, and the FDF should establish and routinely test a coordinated crisis response framework.
- Emergency Liquidity Assistance (ELA) and Public Liquidity Backstop (PLB):
  - The SNB’s Extended Liquidity Facility (ELF) is a positive step toward a comprehensive ELA framework.
  - To strengthen preparedness, the SNB should be authorized to require banks to prepare collateral.
  - Adopt a PLB to formalize government backup for ELA—available to both SIBs and non-SIBs whose failure could pose systemic risks—to reinforce the credibility of the TBTF regime.
- Deposit insurance and crisis preparedness:
  - Remove the cap on banks’ deposit insurance contributions, and over time align the scheme with international best practices.
  - Operationalize and communicate the comprehensive ELA framework; enable SNB to ask banks to prepare collateral, targeting a wide range of assets.
  - Enhance crisis preparedness by adopting a national contingency plan and conducting regular multi-agency crisis simulations, including cross-border.

### FSAP Key Recommendations (selected and organized; timing: I = immediate (within 1 year), ST = short-term (2–3 years), MT = medium-term (3–5 years))
- Systemic Risk Analysis
  - Improve data collection on mortgage exposures, trading investment portfolios, Lombard loans, and bilateral exposures (beyond banks) to enhance risk analysis. — FINMA/SNB, MT
  - Enhance the solvency stress test model (including risks relevant for asset managers, micro data on households and firms); develop a liquidity stress test model. — SNB, MT
  - Develop a dataset and regularly collect data on pension funds to enable market-wide horizontal and systemic risk analyses. — OPSC, MT
- Cross-Cutting Financial Regulation and Supervision
  - Exempt FINMA’s supervisory measures from automatic suspension in the event of legal appeals and introduce FINMA’s power to levy fines on institutions and individuals. — FDF, I/ST
  - Enable FINMA to issue binding prudential standards in all necessary areas and to provide clear supervisory expectations through circulars. — FDF, ST
  - Increase FINMA’s supervisory staff and improve the breadth, depth, and intensity of direct risk-based supervision, including on conduct, fintech, cyber risk and AML/CFT. — FINMA, ST
  - Enable FINMA to fully mandate, oversee, and pay for external regulatory auditors, and reduce reliance on external regulatory auditors. — FDF/FINMA, MT
- Banking Sector
  - Expand and strengthen FINMA’s legal powers (to all banks) in early intervention, onsite examinations, Pillar 2 capital add-ons, governance failures; introduce a Senior Manager’s Regime applicable to all banks. — FDF, FINMA, I/ST
- Securities Markets and Asset Management
  - Improve market monitoring and reporting, plugging significant data gaps in both asset management and secondary markets. — FINMA, ST
  - Enhance the mechanisms to prevent, detect, and enforce market abuse. — FDF, FINMA, MT
- Insurance and Pension Funds
  - Provide cantonal supervisors with authority and instruments to intervene. — FDF, OPSC, MT
  - Strengthen suitability review for insurers to cover all the heads of control functions. — FINMA, FDF, MT
  - Implement recovery planning for all internationally active insurance groups (IAIGs) and designated non-IAIGs; implement resolution planning for IAIGs, as applicable. — FINMA, ST
- Cyber Resilience
  - Extend cyber and outsourcing regulations to all parts of the financial sector. — FDF, FINMA, NCSC, ST
  - Expand cyber risk oversight over critical third-party service providers, improve incident reporting regulation, and develop a testing framework. — FDF, FINMA, SNB, NCSC, ST
- AML/CFT
  - Implement the Register of Beneficial Owners and introduce legal obligations for gatekeepers (lawyers, accountants, etc.). — FDF, ST
  - Issue more granular supervisory guidance and continue enhancing monitoring of risks from cross-border activities and virtual assets. — FINMA, ST
- FMIs and Fintech
  - Increase direct oversight of FMIs and collaboration with foreign authorities. — FINMA, SNB, I
  - Assess banks’ crypto assets exposures comprehensively and implement the Basel prudential standard in a faithful and timely manner. — FDF, FINMA, ST
  - Develop a governance structure for open finance. — FDF, MT
- Macroprudential Framework and Policies
  - Introduce a binding DSTI cap, remove the ceiling on the CCyB, adopt a positive neutral setting for the CCyB, and introduce a capital-based instrument separate from the CCyB. — FDF, FINMA, SNB, I/ST
  - Establish a formal Systemic Risk Council, including SNB (lead), FINMA, and FDF, with a clear mandate, procedures, and accountability. — FDF, FINMA, SNB, MT
- Financial Safety Net and Crisis Preparedness
  - Develop a clear early intervention framework with sufficiently early and forward-looking triggers, tools, and enforcement mechanisms. — FDF, FINMA, I
  - Adopt a PLB to formalize government backup to ELA provided to SIBs or non-SIBs that may become systemic in failure. — FDF, SNB, I
  - Expand recovery planning to all banks, and resolution planning and resolvability assessments to all Category 3 banks and above; enlarge FINMA’s authority to remove impediments to resolution. — FDF, FINMA, ST
  - Conduct a deep review of legislation to assess the feasibility of implementing a full range of resolution options and adopt necessary changes. — FDF, FINMA, ST
  - Increase staff working on recovery and resolution. — FINMA, ST
  - Operationalize and communicate the comprehensive ELA framework; enable SNB to ask banks to prepare collateral, targeting a wide range of assets. — SNB, FDF, ST
  - Enhance crisis preparedness by adopting a national contingency plan and conducting regular multi-agency crisis simulations, including cross-border. — FDF, FINMA, SNB, ST
  - Remove the legal cap on banks’ contributions to esisuisse and introduce an ex-ante fund with back-up from the government. — FDF, MT

*Source: Switzerland — FSAP Executive Summary (IMF).*

### 1.      Switzerland has shown notable resilience in the face of challenging global conditions.

### 1.      Switzerland has shown notable resilience in the face of challenging global conditions.

### Macroeconomic performance and outlook
- 2024 GDP expanded by 1.3 percent y-o-y, driven primarily by robust performance in the services and manufacturing sectors.
- Inflation dropped to 0.1 percent in June 2025, from one percent in 2024, driven by a strong franc and global disinflationary trends.
- Net exports declined due to weaker external demand.
- GDP growth is projected to reach 1.3 percent in 2025 (adjusted for sporting events).
- Notable downside risks: persistent global economic uncertainty, rising geopolitical tensions, volatile energy prices, and uncertainty over trade policies.

### Monetary policy and interest rate outlook
- The SNB lowered its policy rate to zero in June 2025.
- SNB projects inflation at 0.2 percent for 2025 and 0.5 percent for 2026.
- Market expectations point to a return to negative policy rates by year-end.
- A sustained period of low or negative interest rates is likely to:
  - stimulate lending,
  - encourage risk taking,
  - exert upward pressure on real estate prices.

### Credit, housing, and real estate valuation
- Domestic credit grew by 2.3 percent in 2024, on the back of monetary easing.
- Mortgage growth reached 2.8 percent in 2025 Q1, driven by declining mortgage rates.
- Prices in the owner-occupied and single-family home segments grew by nearly 4 percent.
- Estimates of house price overvaluation:
  - Valuation metrics: about 30 percent above the historical average.
  - Econometric models: 20–25 percent overvaluation.
  - SNB estimates apartment prices overvaluation at around 15–40 percent.
- Credit and mortgage-to-GDP ratios have remained broadly stable, while credit gap estimates present a mixed picture.

### Financial sector structure and scale
- Total financial sector assets close to ten times the country’s GDP.
- Banking sector:
  - Banks assets amount to close to 420 percent of GDP.
  - SIBs (UBS, Zurich Cantonal Bank, Raiffeisen, and Post Finance) account for about two-thirds of the total.
  - UBS is the only Swiss G-SIB.
  - UBS, Post Finance, and Raiffeisen hold the bulk of customer retail deposits.
  - Globally active banks focus on asset and wealth management; domestically focused banks have loans making up two-thirds of their portfolios and half of their income.
- Insurance sector:
  - Premiums account for close to 18 percent of GDP.
  - Total assets account for close to 90 percent of GDP.
  - Five largest life insurers: 80 percent market share.
  - Five largest non-life insurers: 67 percent market share.
  - Swiss Re is the second largest global reinsurer and earns nearly all its premiums abroad.
- Pension fund sector:
  - Assets around 140 percent of GDP.
  - More than 1,300 institutions operate occupational pension schemes.
  - Most pension plans are defined-contribution regimes.
- Investment funds and OFIs: each account for about 160 percent of GDP.
- Asset and wealth management:
  - Swiss asset managers manage around CHF 7.8 trillion in assets.
  - CHF 1.3 trillion in collective assets.
  - CHF 1.9 trillion in discretionary mandates.
  - Banks manage most of these assets.

### Market infrastructure, fintech, and digital assets
- SIX Group AG (bank-owned) is the primary provider of trading and post-trading services, operating:
  - SIX Stock Exchange, RTGS, CCP, CSD, SSS, SDX, and the SIX Repo Trading Platform.
- SIX Stock Exchange free float market capitalization around CHF 1.4 trillion (175 percent of GDP).
- SDX went live in 2021 when the legal framework for DLT was introduced.
- Project Helvetia advanced to a pilot phase in a “live” environment (wCBDC for settling tokenized financial assets).
- 2019 fintech license change: institutions can accept public deposits up to CHF 100 million or crypto assets.

### Governance and institutional responsibilities
- SNB: monetary authority with a financial stability mandate.
- FINMA: supervision and resolution of banks, insurance, FMIs, and securities markets.
- FDF: responsible for financial stability policies and significant regulatory powers.
- Pension schemes supervised at the cantonal level, with some federal oversight.
- SNB, FDF, and FINMA responsible for macroprudential policies.
- A tri-partite MOU (SNB-FINMA-FDF) focuses on cooperation during crises.

### Progress since the 2019 FSAP and post-2023 crisis reviews
- Progress since 2019 FSAP has been modest:
  - Improvements: asset management legislation and supervision, fintech data collection, FMIs legislation, and targeted supervisory tool upgrades.
  - Persistent issues: FINMA’s constrained legal powers and resources, heavy reliance on external regulatory audits, scarce macroprudential tools, unresolved gaps in the financial safety net.
- 2023 crisis highlighted critical shortcomings in supervisory, resolution, and crisis management frameworks.
- 2024 FSB Peer Report emphasized need to strengthen FINMA’s powers and resources.
- FINMA’s assessment of CS failure: current supervisory and resolution powers reached their limits.
- 2024 government review of TBTF regime and parliamentary investigation (PUK) highlighted shortcomings and proposed reforms.
- Final set of reforms proposed by the Federal Council on June 6, 2025 for parliamentary discussion go in the right direction but many measures are not yet detailed and will take years to implement.

Box: Main recommendations from reviews following the 2023 crisis
- Government review (2024) TBTF actions:
  - Strengthen prevention regime for SIBs: introduce a Senior Managers’ Regime, tighter capital requirements, enhance early intervention and recovery.
  - Strengthen liquidity regime for SIBs: increase liquidity requirements, review and refine ELA framework, expand preparedness by banks, introduce a PLB.
  - Expand crisis toolkit for SIBs: improve resolution planning and resolvability, strengthen crisis cooperation.
- PUK findings and proposals:
  - Attributed failure to the bank’s mismanagement; criticized FINMA for granting capital relief that masked the bank’s state.
  - Proposed enhancing SIB governance and oversight, empowering FINMA (limit appeals, power to impose fines, require capital planning, expand early intervention and disclosure), strengthen liquidity support (prepare for potential ELA), and improve crisis preparedness and coordination (better SNB–FDF cooperation, less emphasis on FINMA as resolution authority).
- Federal Council reforms (June 2025): enhance the TBTF regime and broaden selected governance, Senior Management Regime, and administrative fine provisions to all banks; FINMA early intervention and enforcement details remain to be specified.

### Financial sector buffers and vulnerabilities
- Banks’ regulatory metrics and profitability:
  - Tier 1 regulatory capital ratio about 19 percent.
  - Liquidity coverage ratio (LCR) exceeds 190 percent.
  - Nonperforming loans have been on the rise—particularly in construction, hospitality, and retail—but remain at very low levels overall.
  - Banks’ structural low profitability was temporarily alleviated by the short-lived monetary policy tightening cycle; return to low interest rates and changes in SNB reserve remuneration policy will further pressure profitability.
  - Interest margin increased across all banks in 2023.
- Insurers and pension funds:
  - Temporarily elevated market rates strengthened profitability and solvency of insurers.
  - Pension funds achieved a median yield of 4.5 percent and maintained a positive balance between contributions and benefits.
- Vulnerabilities:
  - Real estate lending accounts for 86 percent of loans—significant profit source for domestically focused banks.
  - Real estate-related investments: 31 percent of life insurers’ assets and 23 percent of pension funds’ assets.
  - About 20 percent of real estate exposure is at variable rates.
  - Significant house price overvaluation, elevated household debt, and loosening lending standards increase vulnerability to a sharp real estate market downturn.
- UBS systemic footprint:
  - UBS total assets now comprise 167 percent of GDP, 45 percent of banking sector assets, 23 percent of total mortgages, and 25 percent of domestic deposits (post-acquisition of CS).
  - UBS is the only Swiss G-SIB and provides critical functions domestically and globally; characterized by complexity, cross-jurisdictional activities, and interconnectedness.
  - UBS is subject to Swiss TBTF regulations and total loss-absorbing capacity requirements applicable to G-SIBs.

### Macrofinancial scenarios and stress testing
- Stress test horizon: three-year horizon spanning 2025–27.
- Baseline aligned with IMF WEO projections (intermittent version as of end-February 2025).
- Two adverse scenarios:
  - Demand-driven disinflationary shock (Adverse (D)): involves easing in monetary policy and a downward correction in housing markets; global component assumes deepening geoeconomic fragmentation and materialization of global risks.
  - Supply-driven inflationary shock (Adverse (S), geopolitical risk scenario): involves increase in monetary policy rates to counter inflationary pressures and a downward correction in housing markets; global component assumes deepening geoeconomic fragmentation and materialization of global risks.
- Bank stress testing:
  - Sample: common set of 92 banks at consolidated level, covering 93 percent of Swiss banking system assets at end-2024.
  - Covered: all SIBs, cantonal banks, private banks with asset and wealth management focus, and a large number of regional and smaller banks (including 42 regional banks).
  - Hurdle rates under adverse scenarios: sum of regulatory minimum capital requirements (Pillar 1), Pillar 2 requirements, and surcharges for the four SIBs; CCoB and CCyB assumed available for use.
  - Results: under the most severe scenario (supply shock), aggregate CET1 capital ratio of the 92 banks falls from 17 percent at end-2024 to 10.8 percent at the trough.
    - Cantonal banks’ solvency drops by 4.3 percentage point (least affected).
    - Asset managers: start with a CET1 ratio of 20 percent and experience the largest decline.

*Source: IMF staff calculations; SNB; Haver Analytics; FINMA; FSB reports and related material as presented in the chapter.*

### 13.6 percentage points. SIBs’ aggregate CET1 ratio also drops considerably (by 6.3 percentage

### Switzerland: Financial Sector Stress Test and Risk Analysis (excerpt)

### Bank Solvency Stress Test — Key findings
- Aggregate sample of 92 banks: capital ratio drops by about 6 p.p. to the low point in Year 2.
- SIBs’ aggregate CET1 ratio drops by 6.3 percentage points, but all SIBs remain above the hurdle rates.
- Five of 92 banks fall below the CET1 hurdle rate by the third year of the scenario.
- Regarding total capital ratios, six banks (with combined assets of 4.6 percent of banking system assets at end-2024) fall short of the hurdle rate.
- Combined CET1 capital shortfall of the banks that fall short amounts to 0.4 percent of GDP.
- Under the supply shock, capital impact drivers (cumulative to Year-3, relative to baseline):
  - Net loan losses: 4-percentage point decline.
  - Fees and commissions income: -2.2 pp.
  - Trading income: -1.7 pp.
  - Net interest income: -1.4 pp.
- Loan losses are primarily driven by deteriorating mortgage portfolios, with regional banks, cantonal banks, and other smaller institutions most affected.
- Significant additional losses arise from Lombard loans tied to international business, particularly impacting asset managers and SIBs (results for asset managers carry elevated model uncertainty).
- Rising interest rates in the supply shock amplify stress via increased funding costs, higher loan losses from variable-rate borrowers, and valuation losses on bond holdings.
- Optional revaluation of held-to-maturity (HTM) bond portfolios (sensitivity analysis) under the supply shock:
  - Cantonal banks: capital impact of -1.5 percentage points.
  - Regional banks: capital impact of -0.9 percentage points.

### Bank Liquidity Risk — Key findings
- Liquidity risk assessed via LCR, cumulative funding gaps, NSFR, and a cash flow–based stress test with liquidity-to-solvency feedback loops and released collateral at stressed valuations.
- Stress assumptions included stringent deposit outflows, drawdowns on committed credit lines, and declines in asset valuations, with run-off rates guided by regulatory LCR stress parameters and recent outflow patterns observed at CS.
- All banks meet LCR requirements at the baseline, but regional and smaller banks—and certain asset managers—show signs of vulnerability.
- Under the stress scenario:
  - 10 out of 92 banks are estimated to face a liquidity shortfall within 30 days; all are regional or “other banks.”
  - Extending the horizon to 6 months and applying the most severe stress assumptions for bond and equity holdings, 19 banks are projected to experience liquidity shortfalls, with the majority being small regional banks.
- Liquidity sensitivity metrics:
  - Cantonal, regional, and other banks have lower LCRs than other clusters.
  - NSFRs rest at comfortable levels for the median of the banks in all clusters.
  - Cumulative funding gap relative to initial liquid assets is most negative for regional banks.
  - Unencumbered liquid assets as percent of total liabilities are lowest for regional and other banks.
  - Off-balance sheet commitments are highest for SIBs.
- The liquidity shortfall of the failing among the 92 banks accumulates to 0.15 percent of initial liquid assets of all banks.

### Insurance and Pension Risk — Key findings
- Insurance stress test (consolidated group basis, Swiss Solvency Test) on six Swiss insurance groups (accounting for two-thirds of life and non-life market and more than 70 percent of reinsurance sector).
- Median SST ratio declined from 255 percent pre-stress to 219 percent post-stress; no insurer fell below the regulatory minimum.
- Two insurers implemented reactive management actions that raised their SST ratios by 15 and 20 percentage points, respectively.
- Valuation losses from severe market stresses lead to a large fall in insurers’ own funds:
  - Sample’s SST ratio fell by almost 60 percentage points, from 250 percent under the baseline.
  - Balance sheet shrank by CHF 180 billion and risk-bearing capital was almost halved.
  - New target capital falls by 32 percent due to lower asset and liability post-stress exposures.
  - Average assets to liabilities ratio fell from 117 percent to 110 percent, corresponding to a loss in equity of nearly CHF 60 billion.
- Spread and property sector risks, followed by equity risk, have the largest net impact on equity.
- Pension fund sector analysis (market-wide) highlights:
  - Sector structure and limited early access reduce immediate liquidity risk.
  - Significant variation exists in technical interest rates and fluctuation reserves; ongoing consolidation warrants monitoring.
  - Regulations governing derivative instruments are stringent.

### Interconnectedness — Key findings
- Network analysis and default simulations used bank-level domestic interbank exposures for 92 banks, BIS cross-border exposure data, and SWIFT payments flow data.
- Hypothetical defaults of SIBs would trigger significant domestic interbank spillovers, particularly affecting cantonal banks.
- Cantonal banks exhibit highest vulnerability to spillovers.
- Simulations identified one bank with potential to amplify systemic spillovers.

### Climate Risk Analysis — Key findings
- Climate risk scenario focused on physical flood risk to mortgage portfolios, aligned with Representative Concentration Pathway 8.5 and including nine acute flood scenarios plus chronic increases in annual expected flood damage.
- Household impacts from property damage and higher insurance premiums translate into higher bank credit risk via increases in LGD and PDs.
- Regional exposures and banks’ geographical footprints drive variation in impacts on PD and LGD; the full capital effect depends on mortgage portfolio size.
- An extreme flood scenario could materially impact property values and bank capital ratios; cantonal and regional banks are most exposed.
- A 57 percent increase in the annual average flood risk by mid-century is estimated to:
  - Raise building insurance expenditures, increasing PDs by 6 basis point.
  - Reduce the aggregate capital ratio by 4 basis point.
- Switzerland’s compulsory building insurance system mitigates adverse selection and stabilizes premium fluctuations through a double solidarity principle (uniform premiums within each canton and inter-cantonal/compensation funds).

### Recommendations (data collection and reporting)
- Banking sector:
  - Improve data coverage on (i) mortgage exposures and trading and investment portfolios for non-SIBs (e.g., the largest 10–15 banks beyond SIBs); (ii) foreign exposures and Lombard loans; and (iii) income derived from asset and wealth management fees and commissions.
- Insurance:
  - Expand reporting to include (i) detailed data on derivatives and surrender/lapse rates by insurance product type; and (ii) more frequent submissions of the asset template underpinning the prudent person principle.
- Pension funds:
  - Increase granularity and standardization of regularly collected data to reinforce supervision and facilitate horizontal market-wide analysis.
- Cross-sectoral:
  - Extend bilateral exposure data to cover all NBFI types, with time-series elements to support trend analysis.
- Climate-related analysis:
  - Require financial institutions to provide additional data to quantify climate-related risks.

*Source: SWITZERLAND — INTERNATIONAL MONETARY FUND (excerpt).*

### 38.      The authorities are encouraged to further advance modeling capabilities and

### FINANCIAL SECTOR OVERSIGHT

### Modeling, Data, and Cross-Agency Collaboration
- Authorities encouraged to further advance modeling capabilities and strengthen cross-agency collaboration.
- Specific recommendations:
  - SNB and FINMA should jointly develop a bank liquidity stress testing model.
  - FINMA should continue close monitoring of spread risks and real estate-related exposures in the insurance sector, and the adequacy of banks’ provisioning for performing exposures, using forward-looking, expected loss approaches.
  - Develop structural micro data-based models for households and nonfinancial firms leveraging micro data collected by the SFSO.
  - Use the SNB’s top-down stress testing model as a benchmark for bottom-up stress tests; use insights from FINMA’s bottom-up exercises to inform enhancements to the SNB’s top-down stress testing model.
- Caveats: Climate risk analysis is subject to caveats and limitations regarding data and models and results should be interpreted with caution.

### Systemic Risk Oversight and Macroprudential Framework
- Current macroprudential toolset:
  - The only dedicated macroprudential tool is the sectoral CCyB.
  - CCyB history: set at 2 percent from 2014 to March 2020 (sectoral focus on residential mortgage loans), released during the pandemic, and raised to its legal maximum of 2.5 percent in 2022.
  - No borrower-based measures are in place.
  - Authorities rely on a self-regulation regime for mortgage lending issued by the SBA (qualitative guidelines, loan-to-value (LTV) caps, amortization requirements) but it does not incorporate formal benchmarks for income-based affordability (e.g., DSTI cap).
  - FINMA uses unwritten “industry standards” as benchmarks to assess bank policies.
- Assessment:
  - The sectoral CCyB has reached its upper ceiling and appears insufficient to mitigate rising systemic risks.
  - Additional measures are warranted given recent monetary easing and cantonal initiatives expected to stimulate credit demand and contribute to house price overvaluations, looser lending standards, and increased systemic risks.

### Lending Practices and Affordability Risks
- Evidence on compliance and lending practices:
  - Banks have broadly complied with the SBA’s LTV caps.
  - Deviations from prudent income-based affordability criteria are increasing.
  - In about half of owner-occupied newly granted mortgage loans and around 60 percent of investment-property related lending since 2017, stressed debt service and maintenance costs exceeded the income-based affordability threshold used by FINMA.
- Basel III final risk weights concern:
  - Affordability risks are not sufficiently covered; Basel III final risk weights assume that only 15 percent of mortgage loans carry elevated risks due to affordability or valuation, which is in practice much higher.
- Affordability criteria used (note):
  - Owner-occupied segment: threshold of 38 percent of the sustainable net income (without variable compensation, capital gains, etc.), covering stressed costs calculated by a 5 percent imputed mortgage rate and 1 percent amortization, as well as building-related maintenance costs of 0.8 percent of the house value.
  - Investment property: affordability threshold is 100 percent of the rental income.

### Macroprudential Policy Recommendations and Counterfactual Analysis
- Recommended policy measures:
  - Introduce a DSTI cap alongside the existing LTV cap, with a binding effect on applicable risk weights (for example, as a new minimum requirement under the existing SBA self-regulation).
  - Remove the existing ceiling on the CCyB and introduce a second, distinct capital-based instrument to ensure mortgage-related systemic risks are adequately addressed.
  - Support more flexible use of broad-based and sectoral capital tools and facilitate the introduction of a positive cycle-neutral CCyB.
- Counterfactual analysis findings:
  - A DSTI cap would help limit borrowers’ PD while LTV cap limits LGD.
  - A DSTI cap of 30 percent would:
    - Primarily affect high loan-to-income (LTI) mortgage lending.
    - Restrict investment-property lending more than owner-occupied mortgage lending.
    - Be more binding for variable-rate mortgages.
  - Model and data:
    - Analysis based on household micro data (Statistics on Income and Living Data, as of 2020, covering a representative sample of 8,000 Swiss households and about 18,000 individuals) and utilizing the integrated dynamic household balance sheet model.
  - Quantified impacts:
    - A 30 percent DSTI cap would reduce the PD impact of the severe supply-shock scenario on mortgage loans by 33 percent.
    - This corresponds to a reduction in the capital impact by 37 bps for the system.

### Institutional Structure for Systemic Risk Decision-making
- Current arrangement:
  - SNB has a financial stability mandate and makes recommendations regarding the CCyB to the Federal Council, in consultation with FINMA.
  - No institution has a formal mandate to advise on adjustments of the macroprudential toolkit if existing tools were found insufficient, creating potential inaction bias.
- Recommendation:
  - Formalize a Systemic Risk Council—led by the SNB and comprising FINMA and the FDF—to regularly assess systemic risk and decide on policy measures, while maintaining the SNB’s authority to propose appropriate measures.
  - The council should provide joint communication to enhance transparency and accountability.

### Financial Sector Supervision and Regulation: Legal Limits and Reforms
- Legal and operational constraints on FINMA:
  - FINMA’s supervisory decisions are automatically suspended if institutions file appeals in court.
  - FINMA can only issue binding prudential standards in specific areas indicated by law.
  - Restrictions on conducting onsite inspections (e.g., in smaller banks).
  - Cannot impose fines on supervised institutions or individuals.
  - Several supervisory powers are incomplete or defined at a very high level.
  - Overreliance on external regulatory audits limits prudential supervision quality.
- Consequences:
  - Legal limitations exposed by the recent CS failure; they have influenced FINMA’s capacity and readiness to act.
- Recommended legal and institutional changes:
  - FINMA’s supervisory decisions should not be subject to automatic suspension when appealed.
  - Enable FINMA to issue supervisory standards in all necessary areas and codify supervisory expectations (for example, through circulars).
  - Empower FINMA to impose administrative fines on regulated institutions and individuals.
  - Apply enhanced powers uniformly across all institutions while maintaining risk-based supervisory approach.

### Strengthening FINMA’s Capacity and Audit Practices
- Issues with external regulatory audits:
  - Focus primarily on compliance checks, lack capacity to assess bank management, and may present conflicts of interest when performed by the same firms that do financial audits and are selected/paid by banks.
- Recommendations:
  - Allow FINMA to directly mandate and pay for regulatory audits and gradually reduce reliance on external regulatory audits.
  - Significantly reinforce FINMA’s internal staffing and capacity to intensify direct supervisory engagement across all categories of firms.

### Banking Supervision: Powers, Early Intervention, and Pillar 2
- Basel Core Principles (BCPs) assessment:
  - FINMA’s powers are not commensurate with the size and complexity of the banking system and lag peers overseeing G-SIBs.
  - FINMA’s formal powers are triggered late (mostly at a breach of law and regulation), limiting effective course-correction.
  - Deficiencies include incomplete sanctioning powers over bank management and board; absence of legal basis to fully articulate risk management standards; poorly defined Pillar 2 regime; capital treatment of participations in subsidiaries allowing partial capital backing via risk weighting of participations rather than prudent deduction.
  - The BCP assessment was based on the revised 2024 methodology.
- Recommendations:
  - Equip FINMA with comprehensive early intervention powers that apply uniformly across all banks, including the ability to:
    - Preemptively restrict business activities.
    - Require capital conservation measures.
    - Order activation of a recovery plan.
    - Remove senior management.
    - Require rectification of deficiencies in risk management or internal controls.
  - Prepare a clear early intervention framework with forward-looking triggers and tools.
  - Clarify and expand the Pillar 2 framework to allow routine imposition of capital add-ons using stress tests and supervisory judgement.
  - Require all banks to implement an internal capital adequacy assessment process (ICAAP), scaled proportionately.

### Supervisory Enhancements and Legislative Reforms
- Progress and priorities:
  - Commendation for timely implementation of the final Basel III framework.
  - Reforms after the 2023 crisis to supervisory staffing, tools, and intensity must continue.
  - Ongoing initiatives: new supervisory rating system, upgraded toolkit, increased number and scope of inspections with focus on governance.
- Recommended continuation:
  - Boldly pursue reforms, enhance supervisory approach for Category 3 banks, prepare a comprehensive supervisory handbook, and improve data analytics.
  - Recent legislative reforms proposed by the Federal Council will help reinforce bank supervision; FINMA should use existing options (including issuing rulings) until legislative amendments are delivered.

### Securities Markets and Asset Management Supervision
- Progress since last FSAP:
  - Legal framework upgraded with two new acts in force since 2020, including a new licensing regime for portfolio managers and trustees.
  - Improvements in collective investment scheme framework, including liquidity risk management, reporting, and supervisory process.
- Remaining gaps and recommendations:
  - FINMA’s organization should reflect cross-sectoral nature of asset management and trading activities.
  - Additional staff needed to bolster supervision of asset and wealth management and trading venues; reduce reliance on regulatory auditors.
  - Strengthen supervision by enhancing reporting requirements, publishing supervisory expectations, focusing on key risks, and periodically reviewing processes.
  - Improve market monitoring (trading outside venues, shifts in liquidity patterns) and address substantial data gaps in asset management and secondary markets; strengthen related reporting frameworks.
  - Regulatory upgrades: implement FSB and IOSCO standards on liquidity risk management for open-ended funds (open-ended funds constitute more than 99 percent of the Swiss domiciled investment funds by net assets).
  - Expand FINMA’s supervisory perimeter to include pure investment advisory and distribution services preferably through holistic licensing, regulatory and supervisory regime.
  - Codify cooperation between FINMA and Self-Regulatory Organizations and enhance FINMA’s relevant powers in line with IOSCO principles.
  - Ensure FINMA has adequate investigative and enforcement tools, particularly powers to fine individuals for effective enforcement of market abuse cases.

### Insurance and Pension Supervision
- Insurance supervision:
  - Targeted review indicates a high level of compliance with selected IAIS principles.
  - Insurance regulation is generally robust and broadly aligned with international standards.
  - Framework includes extensive requirements for risk management and internal controls; SST is a sophisticated risk-based capital adequacy regime.
  - Recommendations:
    - Increase FINMA’s direct engagement with insurers, especially on conduct.
    - Apply suitability requirements to all heads of control functions of insurers.
    - Require all IAIGs and designated insurance groups to prepare recovery plans.
    - FINMA should prepare resolution plans for all identified IAIGs in coordination with relevant foreign authorities.
- Pension fund supervision:
  - Need further reinforcement: convergence of technical bases and more transparency for consistent and risk-adequate reserving given low-interest environment and increasing life expectancy.
  - Cantonal supervisors should have authority and instruments to intervene when discrepancies are identified.
  - Reduce reliance on external regulatory auditors and apply more intrusive, risk-based supervision.
  - Collect more detailed and frequent data for market-wide horizontal and systemic risk analyses.
  - Establish a formal platform to discuss developments and risks to financial stability among cantonal supervisors, OPSC, and FINMA.

### Cyber Risk Supervision
- Recent developments:
  - Switzerland has a relatively new cyber risk oversight framework with significant reforms since 2020: amendments to the Information Security Act, new FINMA circulars requiring reporting of cyber incidents and enhancing operational risk and resilience, establishment of the National Cyber Security Centre (NCSC), and a public-private partnership for threat intelligence exchange, incident response assistance, and cyber exercises.
- Remaining priorities:
  - Broaden FINMA’s cyber risk regulations to all supervised entities.
  - Strengthen supervision for smaller banks, other financial sector entities, and external service providers.
  - Reinforce staff resources at FINMA, the SNB, and the NCSC to adequately monitor cyber risks.
  - Strengthen incident reporting framework, testing requirements, and coordination among authorities.

### AML/CFT Supervision
- Recent steps and remaining gaps:
  - Steps taken to strengthen the AML/CFT regime, including certain legal enhancements.
  - Continued efforts required to implement the Registry of Beneficial Ownership and to reinforce oversight of gatekeepers (e.g., lawyers, accountants, trust and company service providers), requiring an expanded legal framework.
  - Limitations hindering FINMA’s AML/CFT supervisory effectiveness include inability to impose fines, resource constraints, and overreliance on regulatory auditors.
- Recommendations:
  - Provide more in-depth and tailored guidance to the industry and conduct inspections across all institutions (not only those deemed high risk).
  - Maintain close supervisory attention to the growing sector of virtual assets and virtual asset service providers.

*Source: Excerpt from Switzerland assessment in the provided PDF content.*

### 59.      The growing volume and complexity of cross-border payments underscore the need to

### The growing volume and complexity of cross-border payments underscore the need to

### Cross-border payments and financial integrity
- Growing volume and complexity of cross-border payments increase the need to closely monitor financial integrity risks and their potential implications for financial stability.
- Analysis of financial flows using SWIFT data has revealed an increase in unusual cross-border payments.
- Recommended actions:
  - Deepen coverage of cross-border risks in the upcoming National Risk Assessment, as currently planned by the authorities.
  - Incorporate transactional data into the risk-based supervision of banks and payment service providers to address non-resident risks.

### FMI oversight and systemic risks
- Assessment:
  - The oversight framework for FMIs appears largely adequate, but increased complexity poses new risks and warrants closer supervisory scrutiny.
  - The Six Group provides a full range of FMI services, has been innovating and expanding operations (including across borders), and its increased size and complexity raise risks for the group and individual FMIs.
  - FINMA and the SNB have implemented robust risk-based supervision of systemically important FMIs, but stretched supervisory resources limit onsite inspections relative to ongoing changes in group structure and risk management practices.
- Recommended actions:
  - Increase direct supervision by FINMA and the SNB for planned expansion of services to EU counterparties.
  - Enhance collaboration with host authorities on common risk management platforms and recovery procedures.
  - Expedite revision of the regulatory framework for FMIs to fully conform with the Principles for FMI.
  - Finalize resolution plans for the domestic CCP and CSD.

### Fintech, DLT, and crypto supervision
- Sector developments and supervisory stance:
  - The regulation and supervision of fintech activities have improved significantly, but the sector is quickly evolving.
  - The DLT Act and FINMA’s guidance have clarified regulation and supervision of crypto activities.
  - The number of crypto service providers reached 40 in 2024.
  - Regulated entities mostly hold off-balance sheet exposures, trading on behalf of clients and offering third-party custody.
  - Custodial accounts: CHF 13.9 billion in crypto assets.
  - Crypto holdings deposited and managed by Swiss banks: CHF 1,983.5 billion and CHF 9,782.5 billion, respectively, at end-2024.
  - Prudential regulation applies capital charges only to on-balance sheet exposures (800 percent risk weight).
  - The regulatory perimeter includes complex business models (e.g., staking) and entities (e.g., a DLT trading facility since March 2025).
  - Open finance currently funnels significantly low volumes of transactions; authorities set out policy objectives and review progress.
- Recommended actions:
  - Keep up with sector dynamics and continue to adapt the framework.
  - Ensure FINMA has sufficient resources to closely monitor dynamic evolution and expansion of regulated entities domestically and abroad.
  - Comprehensively assess crypto assets exposures and adopt Basel’s prudential standards for crypto.
  - Strengthen governance structure for open finance by establishing a formal collaboration forum among stakeholders to assess emerging risks.

### Box 3 — DLT and tokenized assets (highlights)
- Switzerland among the first countries to provide a legal base for blockchain technology; the DLT Blanket Act:
  - Defined ledger-based securities, prudential supervision of crypto-asset custodians, and established FMIs with new technologies and DLT-based settlement.
- FINMA licensed two DLT-based FMIs:
  - Six Digital Exchange (SDX) to operate a DLT-based settlement and exchange (in 2021).
  - BX Digital (BX) for a novel DLT trading facility (in 2025).
- Market and operational observations:
  - DLT-based FMIs compete in post-trade efficiency; seamless integration of payment and securities settlement for tokenized securities is attractive but complicated by operational complexities, costs, and reluctance of banks to switch.
  - SDX experiments with settlement of commercial transactions with wCBDC (the Helvetia pilot) are encouraging.
  - BX settles the cash leg through the RTGS, with limited efficiency gains compared to traditional FMIs.
  - Absence of a secondary market for digitally issued tokenized securities poses challenges: predominantly T+2 market, low use of SDX, and absence of secondary market indicate weak market interest.
  - Atomic settlement faces liquidity and prefunding arrangement issues.
- Observations on positions: Regulated entities mostly hold off-balance sheet positions.
- DLT-companies account for a big part of the Fintech ecosystem.

### Financial safety net and crisis management
- Crisis history and fiscal figures:
  - 1990’s Cantonal Banks’ Crisis:
    - Example: Geneva canton recapitalization cost of CHF 2.1bn.
    - Fiscal costs: Below 1 percent of Swiss GDP; higher burden for individual cantons (e.g., Geneva canton support was equivalent to 10 percent of its income).
  - 2008 UBS Rescue:
    - Transfer of CHF 45.9 billion of illiquid assets to the StabFund, in addition to a capital injection by the federal government of CHF 6 bn.
    - Fiscal costs: 6 percent of Swiss GDP; initial fiscal costs were fully recovered by 2013.
  - 2023 CS crisis:
    - Acquisition of CS by UBS was backed by CHF 168 bn (liquidity from the SNB’s ELA, ELA+, and a PLB to secure SNB’s liquidity assistance).
    - Federal loss protection guarantees of CHF 9 bn were issued for a specific portfolio of assets.
    - Contingent fiscal liabilities of 20 percent of Swiss GDP; fully recovered, including compensation by mid-2024.
- Identified gaps and recommended reforms:
  - Early intervention and recovery planning:
    - FINMA's legal early intervention powers are severely constrained and should be immediately addressed.
    - FINMA should adopt an explicit early intervention framework with early triggers, tools, and enforcement mechanisms.
    - Strengthen legal basis for mandating recovery plans and FINMA’s powers to enforce compliance and request enhancements.
    - All banks, not just SIBs, should be mandated to prepare and activate proportionate recovery plans, based on FINMA’s guidance.
  - Resolution framework and resolvability:
    - Broaden and strengthen resolution powers, planning, and resolvability assessments across a range of scenarios.
    - Conduct a thorough legal review of resolution powers and remove legal barriers to enable the use of bail-in tools—including full and partial write-down and conversion of liabilities—and in combination with transfer powers.
    - Develop resolution plans not only for SIBs but also for Category 3 banks; establish MoUs for cantonal banks benefiting from cantonal guarantees to mitigate execution risks.
    - Assess resolvability of the G-SIB and address impediments to orderly resolution, particularly given limited domestic sale options.
  - Crisis preparedness and coordination:
    - FINMA should develop internal procedures for all resolution tools, not just preferred strategies.
    - Draw up a national contingency plan and conduct regular crisis simulation exercises involving FINMA, the SNB, and the FDF.
    - Incorporate cross-border exercises with Crisis Management Group (CMG) members.
    - Significantly expand FINMA’s recovery and resolution staffing for adequate capacity.
  - Deposit insurance and funding:
    - Remove the legal cap of 1.6 percent of insured deposits on bank contributions and provide for ex-ante contributions by banks, ideally to a public deposit insurance agency with a broader mandate.
    - Set up a dedicated resolution funding mechanism for capital needs not covered by bail-in.
  - Emergency Liquidity Assistance (ELA) and PLB:
    - Recent progress in codifying an explicit ELA framework is welcome; SNB announced ELA can be extended to non-SIBs and launched an ELF.
    - SNB should develop and publicly disclose key elements of its ELA framework—clearly differentiating it from other policy instruments—and establish a coordinated approach with FINMA for forward-looking solvency and viability assessments.
    - ELA framework should incorporate robust supervisory measures and crisis management tools, require banks to prepare for broad collateral mobilization (including foreign assets), conduct regular collateral scanning, and monitor intragroup liquidity and runnable liabilities.
    - Adopting a PLB is critical for credibility of the ELA and resolution frameworks; a formal legal agreement (such as a law) is needed to define the Federal Council’s role in backstopping the ELA.
    - A complementary arrangement, such as a non-public MoU between the SNB and the Federal Council, would be valuable for addressing risks posed by non-SIBs.

### Authorities’ views
- General reception:
  - Authorities appreciated exchanges during the FSAP exercise and broadly concurred with main recommendations.
  - They welcomed the finding that the financial system, including banks and insurances, would withstand severe economic downturn scenarios.
  - Authorities noted that insights from the CS–UBS merger highlighted the need to further strengthen regulation and supervision and have prompted an ongoing comprehensive revision of the TBTF toolkit.
  - Authorities asked that staff’s proposed time frames better take into account legislative processes in Switzerland and noted staff’s recommendations could have benefited from fuller consideration of country-specific institutions and frameworks.
- On regulation and supervision:
  - Authorities were receptive to recommendations, though they considered some shortcomings to be overstated.
  - They reaffirmed commitment to high standards and to further strengthening FINMA’s powers.
  - FINMA enjoys a high degree of operational independence, including budgetary autonomy, and issues binding supervisory standards and expectations, though some areas for improvement remain.
  - FINMA has intensified supervision through additional resources and supervisory benchmarks, in coordination with international peers.
  - Pending legislative approval, SIBs with foreign subsidiaries will face heightened capital requirements requiring full backing of these participations with CET1 capital.
- On systemic risk and macroprudential policy:
  - Authorities broadly concurred with staff’s appraisal of systemic risk and share the view on need to closely monitor developments of mortgage credit exposure.
  - The sectoral CCyB is at its legal maximum (although coverage could still be extended across sectors); any adaptation or implementation of new measures would entail lead time.
  - Authorities do not currently identify urgency to adapt the macroprudential toolkit given latest mortgage and real estate developments and note microprudential supervisory measures are available to address excessive risk-taking by individual institutions.

*Source: Extract from IMF staff report chapter on Switzerland (content unit: 1cheea2025003-source-pdf - 59).*

### 74.      The authorities broadly concurred with staff’s recommendations in other areas. The

### The authorities broadly concurred with staff’s recommendations in other areas.

### Regulatory assessments and authorities' positions
- Authorities agree with the assessment of insurance regulation and supervision and noted staff’s recognition of the SST as a highly sophisticated risk-based capital adequacy regime and welcomed that the staff acknowledged the robust regulatory framework.
- Authorities broadly share the assessment on cyber resilience and are in process of identifying any gaps in the regulatory regime.
- Regarding securities markets, authorities agreed some aspects of the legal, regulatory, and supervisory framework should be further strengthened and noted a number of reforms, including for trading systems, were underway.
- On pensions, authorities agreed that data limitations should be reduced.
- Regarding fintech, authorities welcomed the call to keep regulation and supervision up with rapid evolution of financial innovation and noted that an ambitious legislative proposal was underway.

### Banking system: cross-country comparison (Figure 16) — key points
- Switzerland’s banking system is large compared to peer countries.
- Capitalization is comparable to peers.
- Profitability is consistently lower compared to peers — also in terms of return on equity.
- Bank liquidity in Switzerland compares favorably.
- Asset risks are higher compared to peers, reflected in higher risk weight densities.

### Insurance sector (Figure 17) — key points
- Fixed income assets, including government bonds, corporate bonds and real estate dominate the insurers’ investments.
- The home bias in financial securities is small compared to peer countries, reflecting the internationality of Swiss insurance groups.
- Bond investments are generally of high quality with 56 percent of AA rating or higher.
- Reinsurers increased participations on the account of equities and collective investment schemes.
- The non-life insurance business is well diversified.
- The largest part of reinsurance premia comes from life, property, and casualty segments.

### Pension fund sector (Figure 18) — key points
- The Swiss pension sector is very large (relative to GDP) and very fragmented.
- There is a steady positive balance of contributions over benefits.
- Active members have been growing faster than pensioners.
- Pension funds invest mainly in equities, bonds, and real estate.
- Pension funds achieve a median net yield of 4.5 percent.

### Macroprudential counterfactual analysis (Figure 19) — key findings
- DSTI limits of 30 percent do not affect many owner-occupied borrowers (Owner-Occupied Mortgages DSTI).
- A DSTI limit of 30 percent affects much more investment property of households (Investment-Property Mortgages (Households) DSTI) and corporate borrowers (Investment-Property Mortgages (Commercial Borrowers) DSTI).
- Note: Grey bars indicate mortgage lending affected by the 30 percent DSTI cap. Based on Hypo B data for newly granted mortgages from Q1 2017 to Q4 2024. LTIs and DSTIs in the investment property mortgage segments are scaled to match the LTI distribution in the owner-occupied mortgage segment.

### Selected economic indicators, 2018–2030 (Table 2) — selected exact figures
- Real GDP (Percent Change) series: 2018 2.9; 2019 1.2; 2020 -2.3; 2021 5.6; 2022 3.1; 2023 0.7; 2024 1.4; 2025 0.9; 2026 1.3; 2027 1.1; 2028 1.8; 2029 1.2; 2030 1.8.
- Real GDP (adj. for sporting events) series: 2018 2.5; 2019 1.5; 2020 -2.2; 2021 5.3; 2022 2.9; 2023 1.2; 2024 1.0; 2025 1.2; 2026 1.0; 2027 1.4; 2028 1.5; 2029 1.5; 2030 1.5.
- Nominal GDP (billions of Swiss francs): 2018 709.8; 2019 717.3; 2020 696.1; 2021 744.5; 2022 791.1; 2023 804.0; 2024 825.6; 2025 834.5; 2026 850.2; 2027 865.6; 2028 887.2; 2029 903.9; 2030 926.3.
- Gross national saving (Percent of GDP): 2018 31.3; 2019 29.9; 2020 30.1; 2021 33.4; 2022 33.6; 2023 31.2; 2024 32.0; 2025 30.7; 2026 31.2; 2027 31.8; 2028 32.2; 2029 33.0; 2030 33.4.
- Current account balance (Percent of GDP): 2018 5.6; 2019 3.5; 2020 0.5; 2021 7.0; 2022 8.7; 2023 5.3; 2024 5.1; 2025 5.0; 2026 5.0; 2027 5.3; 2028 5.6; 2029 6.0; 2030 6.3.
- Consumer price index (period average): 2018 0.9; 2019 0.4; 2020 -0.7; 2021 0.6; 2022 2.8; 2023 2.1; 2024 1.1; 2025 0.1; 2026 0.6; 2027 0.7; 2028 0.7; 2029 0.7; 2030 0.7.
- Unemployment rate (in percent): 2018 2.5; 2019 2.3; 2020 3.2; 2021 3.0; 2022 2.2; 2023 2.0; 2024 2.4; 2025 2.9; 2026 3.1; 2027 2.9; 2028 2.8; 2029 2.8; 2030 2.8.
- Potential output growth: 2018 1.8; 2019 1.8; 2020 -0.3; 2021 4.0; 2022 2.2; 2023 1.4; 2024 1.4; 2025 1.4; 2026 1.4; 2027 1.4; 2028 1.4; 2029 1.4; 2030 1.4.
- General government gross debt (Percent of GDP): 2018 39.8; 2019 39.7; 2020 43.2; 2021 40.9; 2022 37.2; 2023 38.7; 2024 37.5; 2025 36.9; 2026 36.1; 2027 35.3; 2028 34.3; 2029 33.6; 2030 32.7.
- Broad money (M3) (Percent Change, Average): 2018 3.2; 2019 0.8; 2020 6.5; 2021 1.4; 2022 0.1; 2023 -2.0; 2024 1.9; 2025 1.1; 2026 1.9; 2027 1.8; 2028 2.5; 2029 1.9; 2030 2.5.

### Bank financial soundness indicators, 2012–2024 (Table 3) — selected exact figures
- Regulatory Tier I capital as percent of risk-weighted assets: 2012 15.7; 2013 17.8; 2014 16.1; 2015 16.6; 2016 15.7; 2017 18.2; 2018 18.3; 2019 19.0; 2020 19.3; 2021 19.1; 2022 19.4; 2023 19.3; 2024 19.0.
- Regulatory Tier 1 capital as percent of assets: 2012 5.7; 2013 6.3; 2014 7.0; 2015 7.5; 2016 7.3; 2017 8.3; 2018 8.5; 2019 8.8; 2020 8.7; 2021 7.4; 2022 7.9; 2023 7.8; 2024 7.6.
- Non-performing loans as percent of gross loans: 2012 0.8; 2013 0.8; 2014 0.7; 2015 0.7; 2016 0.7; 2017 0.6; 2018 0.7; 2019 0.6; 2020 0.8; 2021 0.7; 2022 0.7; 2023 0.8; 2024 0.8.
- Return on Assets: 2012 0.1; 2013 0.4; 2014 0.3; 2015 0.6; 2016 0.3; 2017 0.4; 2018 0.4; 2019 0.1; 2020 0.4; 2021 0.3; 2022 0.2; 2023 0.4; 2024 0.6.
- Liquidity Coverage Ratio (introduced Q1 2015): 2015 140.3; 2016 152.7; 2017 150.9; 2018 158.3; 2019 160.6; 2020 179.2; 2021 177.6; 2022 165.3; 2023 193.4; 2024 181.8.

### Status of key 2019 FSAP recommendations (Table 4) — selected actions and timing
- Recommendation 1 (Strengthen FINMA’s autonomy, governance, and accountability): Timing C; Implementation: Partly taken into account in the 2020 Ordinance to the Financial Market Supervision Act, being fully implemented and applied; steps needed are under review.
- Recommendation 2 (Increase resources for high-quality data gathering and analysis, advance recovery and resolution planning): Timing MT; Implementation: SNB and FINMA decided to introduce a supervisory loan-by-loan dataset on banks’ exposures to non-banks with more than 90 percent coverage; first data release is expected in 2026.
- Recommendation 3 (Expand macroprudential toolkit with mandated supply- and demand-side tools): Timing ST; Implementation: New mandated tools have not been introduced in the macroprudential toolkit.
- Recommendation 4 (Ensure FINMA contracts and pays directly for supervisory audits): Timing ST; Implementation: FINMA published analysis “Ex-post evaluation of the revision of the ‘Auditing’ Circular in May 2023”; Federal Council instructed FDF to review aspects of current legislation as part of TBTF review after CS takeover by UBS.
- Recommendation 5 (Focus supervisory audits and increase FINMA’s risk-based on-site inspections): Timing ST; Implementation: FINMA revised supervisory approach, guided external auditors to a more risk-focused approach; comprehensive assessment published in 2023; resource savings reinvested to increase on-site inspection effectiveness in areas including interest rate risk, cyber and IT risks, and climate risk.
- Recommendation 7 (Strengthen recovery and resolution planning for FMIs): Timing I; Implementation: FINMA assesses recovery plans for SIX x-clear and SIX SIS yearly; plans approved with few noncritical expectations addressed in 2023; necessary legal basis for some resolution tools addressed in evaluation of FMIA though entry into force not expected before 2027/2028.
- Recommendation 9 (Better monitor and manage risk of concentration in regulated funds; FINMA to impose administrative fines): Timing ST; Implementation: Legislation with additional requirements for risk monitoring approved by Parliament; currently no plans to increase monitoring of concentration risks of regulated funds; opportunity to empower FINMA to impose administrative fines being examined.
- Recommendation 10 (Enhance monitoring of fintech activities and address regulatory gaps): Timing ST; Implementation: FINMA increased resources to analyze fintech projects; in 2023 established a report for banks regarding crypto assets; FINMA published guidance for staking services in 2023 and for issuance of stablecoins in 2024; requires Crypto Resolution Package for custody and staking; revision of Swiss Fintech-license under follow-up; FINMA will particularly focus on improving data quality of the reporting.
- Recommendation 11 (Enhance, expand, and expedite recovery and resolution planning, including resolvability): Timing ST; Implementation: A “PLB” that covers SIBs was adopted under an emergency ordinance for 6 months in March 2023; Federal Council adopted a dispatch in September 2023 and is under legislative review; on June 2, 2023, Federal Council approved amendments to IOO and IOA effective 1 January 2024.
- Recommendation 12 (Reform the DIS with a public DIA, ex-ante DIS funding, authority to use deposit insurance funds for resolution funding): Timing MT; Implementation: Federal Council brought amendments to the Banking Act and Banking Ordinance into force effective January 1, 2023; reform strengthens the DIS while not relying on a public DIA, ex-ante DIS funding, or use of deposit insurance funds for resolution funding; FINMA approved self-regulation of esisuisse.

(Note: Timing codes — C = Continuous; I = Immediate (within one year); ST = Short Term (within 1–2 years); MT = Medium Term (within 3–5 years).)

### Risk Assessment Matrix (Table 5) — main risks, likelihoods, and expected impacts
- Trade policy and investment shocks (Likelihood: High): Expected impact — these risks, in conjunction, form the starting point for the supply shock oriented adverse scenario for the Switzerland FSAP; a material supply shock would trigger global inflation pressure, risk of de-anchoring inflation expectations, higher interest rates, pressure on Swiss banks’ funding costs and net income due to long-duration fixed-rate real estate lending, and higher corporate defaults and loan losses.
- Deepening geoeconomic fragmentation (Likelihood: High): Expected impact — higher input costs, hindered green transition, lower trade and potential growth.
- Regional conflicts (Likelihood: High): Expected impact — disrupt trade in energy and food, tourism, supply chains, remittances, FDI and financial flows, payment systems; increase refugee flows.
- Sharp correction in the real estate market (Likelihood: Medium): Expected impact — Switzerland’s very large exposure to real estate means an abrupt correction could lead to asset quality deterioration for banks, lower returns or losses for investors, shrinking household wealth, contraction in construction and related activities, posing risks to economic and financial sector stability.
- Risks from ongoing UBS takeover of CS and the very large G-SIB (Likelihood: Medium): Expected impact — substantial concentration concerns, connectedness/centrality risks, adverse consequences for solvency of the remainder of the Swiss banking system.
- Cyberthreats (Likelihood: High): Expected impact — attacks on physical or digital infrastructure and service providers (including digital currency and crypto assets) or misuse of AI could trigger financial and economic instability; successful attacks can lead to outages of ICT systems and jeopardize availability, confidentiality, and integrity, compromising attractiveness of the financial system.
- Systemic financial instability in major counterpart jurisdictions (Likelihood: Medium): Expected impact — severe crises abroad could cause adverse spillovers to Swiss banks through credit risk, rising funding costs, and liquidity risk events.
- Extreme climate events (Likelihood: Medium): Expected impact — loss of lives, severe infrastructure damage, supply disruptions, lower growth, financial instability, and challenges to insurance and reinsurance companies.

*Excerpt from the IMF Switzerland FSAP chapter (pages 41–53).*

### Appendix I. Banking Sector Stress Test Matrix (STeM)

### Appendix I. Banking Sector Stress Test Matrix (STeM)

### I.1 Banking Sector Solvency Stress Test Matrix (STeM)
- Institutional perimeter
  - Institutions included: 92 banks at consolidated level will be in-scope, including the four SIBs, all cantonal banks, and various universal commercial banks and private banks
  - Market share: 93 percent of banking system assets
  - Data sources and cut-off date:
    - Public and supervisory data
    - Cut-off date: end-December 2024
    - Consolidated banking groups, including their foreign exposures where material (>5 percent of a bank’s total assets)
- Methodology
  - Framework:
    - Balance sheet model that accounts for all relevant risk drivers: credit risk, interest rate and market risk, other P&L components, RWA
    - Dynamic balance sheet
    - Combination of structural and econometric model components
  - Model components:
    - Credit risk: structural model (micro-macro simulation model) for household mortgage portfolios, for both PD and LGD components, rooted in micro/household survey data; econometric satellite models for nonfinancial corporate portfolios; satellite models based on Moody’s KMV PDs for financial corporate portfolios
    - Interest income and expense: econometric pass-through equations, capturing all structural dependences of bank rates on market rates, policy rates, market price of risk, possible feedback from solvency to cost of funding, etc.
    - Net fees and commission income and other income/expenses: bank panel econometric models
    - Market risk: modified duration approach for bond valuation; possible account for hedging
    - STA risk weights constant
    - IRB risk weights modeled dynamically using the relevant risk parameter inputs, themselves projected via structural or econometric model components
  - Stress test horizon: 3 years: 2025-2027
- Type of analyses
  - Scenario analysis:
    - Baseline scenario, based on the IMF WEO (an intermittent version as of end-February 2025)
    - Two adverse scenarios: (1) demand shock-dominated, disinflationary scenario with falling base interest rates; (2) supply shock-dominated, inflationary scenario with initially rising interest rates
    - Informed by (G)RAM
  - Sensitivity analysis:
    - Optional mark-to-market for HTM bonds, in T0 and then revaluing them in line with the interest rate trajectories in the macrofinancial scenarios
- Regulatory and accounting standards
  - Accounting and regulatory standards as relevant for banks in Switzerland (in particular, Swiss GAAP), in particular for what concerns expected credit loss provisioning
  - Expected credit loss provisioning principles, including provisioning for performing exposures, will be accounted for in the stress test model
- Capital buffers and hurdle rates
  - Minimum capital requirements (Pillar 1) plus prudential buffers (Pillar 2), CCoB, CCyB, SIB surcharges and others, as relevant
  - Under the adverse scenarios, CCoB and CCyB are allowed to be “consumed;” capital shortfalls are examine with and without these buffer requirements, to inform how many banks would fall into such buffer ranges
- Reporting of results
  - System-wide capital evolution/depletion and capital shortfalls
  - Aggregated contributions to evolution of capital ratios
  - All possibly by clusters of banks, ensuring that no individual institutions and their results can be inferred

### I.2 Banking Sector Liquidity Stress Testing Matrix (STeM)
- Institutional perimeter
  - Institutions: Same as for solvency stress test (see Table I.1)
  - Market share: Same as for solvency stress test (see Table I.1)
  - Data and base date:
    - Regulatory data based on Basel III standardized liquidity monitoring tools
    - Cut-off date: end-December 2024
- Channels of risk propagation / Methodology
  - Cash flow-based liquidity stress test, with account for liquidity-solvency feedback and add-back mechanism pertaining to secured funding
  - Link to market risk, by involving equity and bond revaluation in the liquidity stress test model
  - Additional monitoring metrics:
    - LCR in CHF (requirement) and in significant currencies (EUR, GBP, JPY, USD) (monitoring metric)
    - Net Stable Funding Ratio (reporting requirement)
    - Concentration of funding (monitoring metric)
- Risks and buffers
  - Risks: Funding risk, rollover risk, market liquidity risk
  - Buffers: Stock of liquid assets
- Tail shocks
  - Size of the shock:
    - Runoff shock calibration for the cash flow-based liquidity stress test informed by LCR parameterization and historical experience in Switzerland and other jurisdictions
    - Revaluation of bond holdings that form part of the counterbalancing capacity in line with market risk shocks that are relevant for the solvency stress test
- Regulatory standards
  - Basel III full implementation for the LCR ratio at 100 percent.
  - Counterbalancing capacity above net cash outflows under stress scenario.
- Reporting format for results
  - Output presentation:
    - Changes in average liquidity position and counterbalancing capacity by scenario.
    - Distribution of banks’ liquidity position by scenario.
    - Number of banks with counterbalancing capacity below net cash outflows.
    - Banks’ post-shock net liquidity position.
    - Liquidity shortfall in terms of banking system total liabilities.

### Appendix II. Insurance Sector Stress Testing Matrix (STeM)
- Institutional perimeter
  - Institutions included:
    - Six insurance groups (Baloise, Helvetia, Mobiliar, Swiss Life, Swiss Re, Zurich)
  - Market share:
    - [>70 percent of total balance sheet assets]
  - Data:
    - Companies’ own data
    - FINMA regulatory reporting
  - Reference date:
    - December 31, 2024
    - December 31, 2023 for cyber scenarios
- Channels of risk propagation / Methodology
  - Bottom-Up Insurance Undertakings:
    - Investment assets: market value changes after price shocks, affecting the solvency position
    - Sensitivity analysis: effect on available capital and solvency position.
    - Time horizon: Instantaneous shock; 3-year projections
  - Top-Down by IMF:
    - Investment assets: market value changes after price shocks, affecting the solvency position
    - Sensitivity analysis: effect on available capital and solvency position.
    - Time horizon: Instantaneous shock
- Tail shocks
  - Size of shock:
    - Macrofinancial scenario broadly in line with the banking sector stress test
    - Instantaneous shock
  - Sensitivity analysis:
    - Outage of cloud service provider
    - Petya/WannaCry-Type ransomware attack
    - Estimation of impact on risk bearing capital and SST ratio from underwriting losses (both affirmative and silent cyber)
    - None (for top-down)
- Risks and buffers
  - Risks/factors assessed:
    - Market risks: interest rates, share prices, property prices, credit spreads
    - Summation of risks, no diversification effects.
    - Separate sensitivity analysis for cyber event
  - Buffers:
    - Product-specific (bottom-up)
    - None (top-down)
  - Behavioral adjustments:
    - Management actions limited to non-discretionary rules in place at the reference date.
    - Including realistic management actions (bottom-up)
    - None (top-down)
- Regulatory standards and parameters
  - Regulatory/accounting standards:
    - Swiss Solvency Test
    - National GAAP, IFRS, US-GAAP
- Reporting format for results
  - Output presentation:
    - Impact on solvency ratios
    - Impact on net income
    - Contribution of individual shocks
    - Dispersion measures of solvency ratios and net income
    - Impact on assets over liabilities (top-down)
    - Dispersion measures of assets over liabilities (top-down)

### Appendix III. Climate Stress Testing Matrix (STeM)
- Institutions included
  - Same as in the banking sector stress testing, covering mortgage portfolios
- Data and starting position
  - Public and supervisory
  - Cut-off date: December 2024
  - Public or authorities’ data on climate projections and insurance conditions
- Methodology
  - Structural model (micro-macro simulation model) for household mortgage portfolios, for both PD and LGD components, rooted in micro/household survey data, geographically differentiated, linked to climate projections, and considering insurance conditions
- Scenarios
  - Baseline scenario, same as in the banking sector stress testing (current climate conditions)
  - At least one adverse scenario, based on future climate conditions from IPCC (depending on the availability of AR5 or AR6 and heterogeneity of future climate conditions)
- Time horizon
  - 3 years: 2025–2027, and consider future climate conditions for 2050 and 2100
- Risks/factors assessed
  - The impact of chronic and acute climate conditions on households and its effects on PD and LGD components
- Output presentation
  - Delta PDs and delta LGDs
  - Individual banks’ capital ratio impacts

### Appendix IV. Interconnectedness and Contagion Analysis
- Institutions involved
  - Swiss banks
  - Switzerland and other countries (BIS data) to which Switzerland is exposed through banking system asset-side claims and liability-side borrowings
- Data and starting position
  - Swiss domestic sectoral exposures
  - BIS cross-country exposures, alongside additional data for assets, risk-weighed assets, and capital, across countries
  - Swiss banks’ bilateral interbank exposure data (largest cross-exposures)
  - SWIFT cross-country transaction flow data
- Methodology
  - Domestic cross-sectoral exposure analysis (net lenders, net borrowers)
  - Network metrics
  - Default contagion simulations, using the Espinosa-Vega & Solé (EVS 2010) model, based on BIS cross-country exposure data and Swiss banks’ interbank exposure data
  - Systematic shock simulations (each node fails one after another), and inform triggers by result of solvency/liquidity stress test
  - Analysis and visualization of SWIFT transaction flow data (not as input for EVS models)
- Buffers
  - Banks’ capital and liquid asset buffers
- Output, results
  - Network metrics and visualizations
  - EVS model results: bank and country level impact and vulnerability rankings, capital losses
  - Emphasis placed on entities (banks) ranking high in terms of both impact and vulnerability

*Appendix I–IV. Banking Sector Stress Test Matrix (STeM) and related STeMs — cut-off dates and scope as specified above.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1cheea2025003-source-pdf.pdf_