Financial and Risk Analysis of Swiss Banks and Insurance Companies

Abstract

Switzerland has a systemically important financial sector. This paper analyzes the financial soundness and risk dynamics of Swiss banks and insurance companies for the past five years. The cross-country comparisons show that despite the recovery in profitability and capital for banks and insurance companies, challenges and risks remain. In particular, big banks should continue to deleverage, enhance capital quality, and build stronger liquidity buffers. Adopting the “Too Big To Fail” legislation is crucial to reduce the systemic risk. Pre-emptive measures are needed to address weaknesses in mortgage lending standards and associated risk management practices. The full implementation of the Swiss Solvency Test is an important step forward to enhance the insurance sector’s resilience while a sustained low interest rate has negatively affected the sector. Risks associated with insurance companies’ exposure to the real estate market warrant continued close monitoring and effective management.

Keywords: systemic risk, too big to fail, large and complex financial institutions

JEL Classification: G01, G12, G15, G21, G28