Challenges and Risks in the Swiss Property and Mortgage Markets

Summary

After a temporary slowdown, property price momentum has picked up again, supported by low interest rates. Given the significant size of the Swiss property market, real estate and mortgage risks remain a core vulnerability of the Swiss financial system, primarily driven by potential credit defaults and uncertainties around property valuations.

Low interest rates are supporting demand for property, while the risk of overheating remains a concern. Affordability and borrowers’ creditworthiness are key factors in assessing mortgage default risk. Principles-based requirements for these criteria are set out in self-regulation. However, FINMA has observed through its supervisory work that the resulting flexibility is being excessively exploited by some banks, potentially increasing default risks.

FINMA will continue to closely monitor the application of principles-based regulation in this area and may seek to make the rules more prescriptive if necessary. Increased default risks could also create a need for further action on capital requirements.

Credit risk is not determined solely by borrowers’ creditworthiness. The value of the underlying collateral, and therefore the accuracy of property valuations, is also critical in determining potential losses in the event of default. FINMA is therefore also focusing on the challenges and potential risk mitigation measures related to property valuations.

Key Topics of the Event

• Property market dynamics and the risk of overheating
• Mortgage default risk, affordability and borrowers’ creditworthiness
• FINMA’s regulatory and supervisory expectations
• Principles-based regulation and the risk of excessive flexibility
• Property valuations and their impact on credit risk and potential losses
• Capital requirements and the implications of increased default risks
• Risk mitigation strategies for banks and financial institutions

Presenter

• Michael Schmutz, Head of Financial Risks at the Swiss Financial Market Supervisory Authority (FINMA)
  Michael Schmutz is the Head of Financial Risks at the Swiss Financial Market Supervisory Authority (FINMA) and a Lecturer at the University of Basel and at EPFL. He has many years of experience in different positions in risk management, financial accounting and has been teaching financial mathematics, probability theory and quantitative risk management at various universities. Michael holds a Ph.D. in Mathematics from the University of Bern and a Diploma in Business Administration from Bern University of Applied Sciences.

The event will be introduced by Ioannis Akkizidis, SRA Board Member and Presidium Member / Product Manager, Associate Director at Regnology, and moderated by Xandra Farkas, Chapter Advisor, Regulatory Developments.

Agenda

18:30  Arrival & Name Tag Collection
18:45  Welcome and Introduction
18:50  Keynote Presentation: Dr. Michael Schmutz
19:45  Panel and Q&A
20:05  Conclusion
20:15  Networking Drinks
21:15  End

Chapter Event

REGULATORY DEVELOPMENTS: The Importance of Regulation in Risk Management in the Financial Industry

In the financial industry, which includes banks, credit institutions, insurance companies and hedge funds, regulation plays a crucial role in shaping risk management practices. Regulatory frameworks are designed to ensure that these institutions operate within appropriate standards of safety, soundness and financial integrity, thereby protecting the broader financial system and individual consumers alike.