In their report, the IMF Executive Directors welcomed Switzerland's impressive growth performance over the last four years, and commended the authorities on their strong macroeconomic policies and structural reform efforts.

Directors noted that the financial turbulence of the past year — and the continued tensions, especially in the interbank markets — have generated risks for the Swiss financial sector.

Although the economy has weathered these challenges well, Directors considered that, along with the slowdown in US activity and the prospect of slower growth in Europe, these developments are projected to decelerate Swiss growth in the period ahead.

Against this background, Directors observed that the key policy priority is to maintain domestic financial stability, which, given Switzerland's strong international linkages, would also contribute to international stability.

They commended the authorities for their vigorous response to date to limit the fallout from the financial turbulence.

In particular, Directors welcomed the authorities' well-timed injections of liquidity into the banking system in concert with other major central banks, and their enhanced oversight of the major banks and insurance companies.

They also praised the authorities for their proactive sharing of information and lessons learned with other regulators, and their smooth coordination of supervisory activities, while calling for continued work on measures that will further enhance financial sector stability.

This work should focus on the following four areas, according to the report: better risk assessment and risk management; increased capital buffers; more liquidity; and greater disclosure.

Looking ahead, Directors noted the importance of stronger buffers to protect the financial system.

They noted that recent developments will likely lead to higher capital requirements under the Basel II framework, and that additional capital may be needed to cushion against unforeseen risks.

In this regard, most Directors considered that a leverage ratio approach envisaged by the authorities could serve as a useful complement to the existing regime, if implemented alongside Basel II and with appropriate safeguards.

Additionally, Directors welcomed Switzerland's development of a stronger stress testing framework to improve liquidity risk management, and a more active review of banks' contingency plans and liquidity management policies.

In the insurance sector, Directors noted progress in implementing the Swiss Solvency Test for insurance companies, and welcomed the strengthened on-site supervision and international supervisory cooperation.

Directors further welcomed the recent appointment of the board and senior management of the new financial regulator (FINMA), and emphasized the need to ensure that the agency has the appropriate level of supervisory capabilities and resources. Directors recommended further strengthening of on-site supervision capabilities, with appropriate reliance on external auditors to monitor regulatory compliance.

They also stressed the importance of building on existing cross-border supervisory arrangements for global groups, and securing more active support of host supervisors in maintaining the stability of global operations.

Directors agreed that the calibration of monetary policy has correctly balanced the risks to inflation and economic growth.

They indicated that the effective easing of monetary policy has been appropriate given the potentially serious downside risks to the economy and the projected decline of inflation. Looking ahead, Directors welcomed the authorities' commitment to continue to monitor developments carefully.

A number of Directors considered that the relatively contained inflation outlook provides some scope for further easing. A number of other Directors believed that the current monetary stance remains appropriate at the present juncture.

Regarding the operational framework, the IMF Directors noted that its flexibility has served the economy well, and looked forward to further analysis of its signalling and substantive effects.

Directors commended the authorities for the country's strong fiscal performance. They emphasized that, following the small fiscal stimulus anticipated in 2008, further progress toward long-term fiscal sustainability will require continued fiscal prudence and structural reforms.

In this regard, Directors welcomed the Long-Term Sustainability Report as an important step in raising awareness of the needed actions, and looked forward to the early formulation of specific policy measures. Directors further noted that savings could be achieved through a consolidation of governmental responsibilities as outlined in the Task Evaluation Program.

They also welcomed the proposal to extend the debt-brake rule to incorporate "extraordinary" expenditures.

In reviewing the factors behind Switzerland's large external current account surplus, Directors considered that the surplus largely reflects structural factors, notably the country's high per capita income, its aging population, and its position as a major financial center.

They also noted that accounting norms and the specificities of the investment flows tend to overstate the surplus relative to other countries.

Taking into account these considerations, Directors generally agreed that the exchange rate appears to be broadly in line with fundamentals.