Before announcing its quarterly monetary policy decision on Thursday morning, the SNB released its annual Financial Stability Report, in which it outlines its assessment of the stability of the financial system.

The SNB notes that the economic environment for the financial sector and market conditions have worsened over the past twelve months, citing trade tensions as the main driver.

No Credit Crunch Despite CS Collapse and Basel III

The report highlights that outstanding credit in Switzerland has continued to grow, despite UBS’s takeover of Credit Suisse (CS) and the implementation of Basel III regulations. Switzerland is the only country to have implemented the final Basel III framework as of early 2025.

A positive sign for system stability is the improvement in bank sector profitability in 2024, largely driven by UBS. Encouragingly, in terms of banking resilience, the report states: «Banks’ capital buffers overall reflect a high capacity to absorb losses and continue lending. Moreover, banks hold substantial liquidity buffers.»

Weak Capitalization at PostFinance

The SNB also observes that profitability has declined among the three domestically focused systemically important banks—PostFinance, Raiffeisen, and Zürcher Kantonalbank—and notes that PostFinance’s capital buffers are comparatively low.

Regarding Switzerland’s remaining large bank, the SNB points out that the integration of CS has weighed on UBS’s profitability, although the bank already meets the capital requirements that will come into effect in 2030.

Regulation: Support for the Federal Council

As expected, the SNB uses this opportunity to again emphasize its support for the Federal Council’s and Finma’s stance on reforming the too-big-to-fail regulation framework. It states: «From the SNB’s perspective, measures aimed at increasing the availability of pre-prepared collateral for accessing central bank liquidity, and strengthening capital requirements, are particularly relevant.»

If banks have sufficiently prepared collateral, they can quickly transfer it to the SNB during a crisis to receive adequate liquidity. The SNB is only allowed to issue loans against collateral—a principle that was not upheld during the CS crisis.

Full Capital Backing of Subsidiaries is “the Best Solution”

Regarding the Federal Council’s proposal—primarily affecting UBS—that the parent bank must fully deduct its stakes in foreign subsidiaries from its core capital and fully back them with capital, the SNB describes this in its report as «the best solution from a financial stability perspective.»

Shadow Banking: «More and Better Data» Needed

The SNB also addresses the shadow banking sector, although it uses different terminology. The relevant institutions—classified as non-bank financial intermediaries (NBFIs)—include investment funds, pension funds, insurance companies, securities dealers, and other actors.

The SNB’s observation that NBFIs play an important role in Switzerland’s domestic financial sector comes as no surprise. It is also well known that this sector has grown faster than the traditional banking sector since the financial crisis.

Still, the SNB notes that the group of NBFIs with bank-like vulnerabilities remains relatively small in Switzerland. However, it adds that some Swiss banks are closely intertwined with both domestic and international NBFIs.

«To better assess the risks to financial stability posed by NBFIs in Switzerland, more and better data are needed,» the SNB concludes.

This conclusion—more than 15 years after the issue of shadow banking became a major topic during the financial crisis (when hedge funds were the main concern)—reflects a degree of continued uncertainty or even helplessness on the part of the financial stability guardians.