According to the Organization for Economic Cooperation and Development’s (OECD) latest economic survey, Switzerland has so far performed better than most industrialized countries in the global financial and economic crisis.
The OECD’s Economic Survey Of Switzerland 2009 reveals that despite the severe losses of its two largest banks and a considerable loss of one of its insurance companies, the Swiss financial system has nevertheless managed to successfully weather the international financial crisis.
The survey does, however, point out that the comparatively large magnitude of the losses of its two largest banks in relation to capital has underscored the systemic risks to the economy posed by the institutions’ large size relative to Swiss gross domestic product and their extensive cross-border and cross-currency activities.
While the Swiss financial regulatory apparatus has been greatly improved during this decade, further steps need to be taken to better contain the systemic risks, the report continues. The existing cooperative arrangements with financial authorities in other countries need to be expanded for the largest Swiss banks and insurance companies and for crisis management in the event of future problems, it suggests.
The report also underlines the fact that the decisive action taken by the Swiss National Bank (SNB) since the outbreak of the crisis has supported financial stability and economic activity. A distinct monetary framework that directly targets the three-month interbank market rate (the Swiss franc Libor) has also helped support domestic credit conditions by limiting the rise in money market spreads compared to other currency areas since the onset of financial market turbulence, it adds.
According to the survey, with the deepening of the crisis and growing deflationary pressures, the SNB turned to unconventional measures to provide further stimulus, including exchange rate interventions.
The sizable lending activity of Swiss banks in foreign currencies raises the demand for liquidity in foreign currency at times of crisis, the OECD notes, stressing that it must be ensured that this demand can be met, for example by continued cooperation with other central banks on swap arrangements.
The OECD survey shows that trade in Swiss francs has followed the global financial market cycle and has influenced recent exchange rate developments which played a determining role in monetary policy when it was constrained by interest rates reaching zero.
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