The International Monetary Fund (IMF) recently called on Switzerland to enhance the stability of its banking sector and fix weaknesses highlighted by the Credit Suisse collapse.
In its analysis of Switzerland’s financial landscape, the IMF recommended that the Swiss Financial Market Supervisory Authority (FINMA) be given more authority and resources. This would enable FINMA to intervene earlier in potential bank failures, with powers to issue fines, conduct on-site inspections, and push for better risk management.
The need for these changes became clear after Credit Suisse, once considered one of the world’s most vital banks, nearly collapsed in March 2023. The Swiss government, central bank, and FINMA orchestrated a rapid $3.25 billion takeover by UBS to prevent a wider banking crisis and protect Switzerland’s reputation for sound banking.
Following this incident, the Swiss government began tightening banking regulations, especially for the now enormous UBS, to ensure its resilience in a future crisis.
Last month, proposals were unveiled that would grant FINMA stronger powers and require UBS to set aside nearly $18 billion in additional capital for its foreign subsidiaries. UBS has expressed concerns that these stringent requirements could put it at a disadvantage compared to international competitors.
Despite these challenges, the IMF believes these reforms will “further strengthen the long-term stability of the Swiss financial centre” and reduce risks for the state and taxpayers.
The IMF concluded that while Switzerland’s financial sector is generally robust, it needs to be made even stronger given the current global economic uncertainties.
The IMF praised Switzerland’s strong economic foundations, credible institutions, and skilled workforce, acknowledging its position as a highly competitive and innovative economy.
However, it also noted ongoing challenges from “safe-haven pressures” and the appreciation of the Swiss franc.
