The impact of geopolitical risks on Swiss finance

1. Why Geopolitical Risk Is Crucial for Swiss Banks

Geopolitical risks have become a decisive factor in the financial sector over the past few years. Whether it’s the Russia–Ukraine conflict, tensions in East Asia, or potential shifts in U.S. monetary policy, these developments carry significant implications for Swiss banks. Traditionally, Swiss financial institutions enjoy a reputation as a “safe haven,” yet new risk areas—such as sanctions, deglobalization, and technological disruption (e.g., generative AI)—are reshaping even the most stable structures.

The study conducted by zeb and the Swiss Bankers Association (SBA) underscores the need for banking strategies that integrate geopolitical considerations more closely than ever before, in order to maintain long-term stability and competitiveness.

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2. Overview of the 34 Identified Geopolitical Risk Factors

The study evaluated 34 geopolitical risk factors, including:

• International Conflicts: Russia–Ukraine, China–Taiwan, U.S.–China, and Middle Eastern disputes.
• Deglobalization and a New World Order: Increasing friendshoring and rising trade barriers.
• Switzerland-Specific Factors: Neutrality debates and intensifying scrutiny around sanctions.
• Technological Developments: The impact of (generative) AI, digital innovation, and related regulations.
• Global Economic Shifts: A possible U.S. debt crisis, commodity price volatility, and competition from Asian tax havens.

These factors were analyzed in terms of connectivity (network analysis) and relevance (e.g., central risk factors such as sanctions) for Swiss banking.

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3. Key Risk Factors: Sanctions as the Pivotal Element

Among the most prominent risk factors, sanctions stand out. While Switzerland has traditionally upheld a stance of neutrality, international pressure to align with global sanctions regimes is increasing. This development affects:

• Compliance Requirements: More complex due diligence processes and stricter controls lead to higher costs.
• Reputational Risks: An inadequate response to sanctions could undermine international client trust.
• Competitiveness: Being too strict or too lenient with sanctions policies can influence market access and perceptions of Swiss banks.

According to the study, “positioning toward sanctions” is the most central risk factor, demanding urgent attention in strategic planning.

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4. Effects on Different Banking Segments

The study distinguishes six core segments in Swiss banking and assesses the potential effects on risk, revenue, and costs:

1. Large Corporate Banking – International
   • High risk due to international conflicts and sanctions, as large corporate clients may operate in crisis regions.
   • Rising costs from more complex compliance obligations.
   • Revenue could decline if global investment flows shift or contract.
2. Corporate/SME Banking – National
   • Less exposure abroad, but sanctions can still affect small and medium-sized enterprises (SMEs).
   • The study indicates a moderate impact on revenue and costs, with heightened risk awareness.
3. National Wealth Management
   • Experts see a potential advantage here, as wealth owners still perceive Switzerland as a “safe haven” during turbulent times.
   • Costs remain manageable, while revenue often benefits from international investors seeking safety.
4. International Wealth Management
   • Mixed effects: Global tensions can spur capital inflows to Switzerland yet complicate access to key growth markets.
   • Compliance and sanctions issues are particularly pronounced in this segment.
5. Asset Management
   • Higher risk exposure given global capital flows and volatile markets.
   • Costs for risk management and regulation could rise; revenue may suffer from margin pressure.
6. Retail Banking
   • Primarily focused on the domestic market.
   • The study projects stable risk levels and steady revenues, though the broader economic context can eventually influence demand.

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5. Historical and Predictive Analyses: Resilience but No Guarantee

According to the study, the Swiss banking sector has historically shown strong resilience. Even during times of elevated global uncertainty—measured by the World Uncertainty Index (WUI)—the Return on Equity (RoE) among Swiss banks has remained relatively stable.

Key Note: This resilience stems from Switzerland’s robust economy, the high level of professionalism in its financial sector, and its global reputation. However, future stability is not guaranteed. Emerging factors such as rapid technological innovation (e.g., AI) and geopolitical realignments (a shift from bipolar to multi-polar power structures) will create complex risk scenarios that demand proactive solutions.

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6. Opportunities and Challenges for Swiss Banks

Despite numerous risks, the study also highlights positive aspects:

• “Safe Haven” Advantage: During periods of crisis, Swiss banks benefit from their internationally recognized stability.
• Growth Through Technology: Generative AI and other digital innovations can streamline processes, reduce costs, and create new business models.
• Diversification: Global client bases allow Swiss banks to tap multiple markets and buffer against regional fluctuations.

However, challenges include navigating heightened regulatory pressures and actively adapting to shifting geopolitical landscapes.

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7. Recommendations for Financial Institutions

To maintain their leading position, Swiss banks should heed the study’s explicit recommendations:

1. Proactive Sanctions Policy: Collaborate closely with authorities and international bodies to establish clear guidelines and uphold integrity.
2. Geopolitical Risk Management: Build structured frameworks to continuously monitor geopolitical trends and conduct scenario analyses.
3. Competitiveness Through Technology: Invest in AI, digitization, and upskilling to secure competitive advantages.
4. Communication Strategy: Maintain transparent outreach to the public and clients to safeguard trust, even amid contentious political developments.
5. Strengthen Neutrality: Craft a clear stance on international conflicts without undermining the core values that define the Swiss financial sector.

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8. Conclusion: Stability Through Foresight and Adaptability

“The Impact of Geopolitical Risks on Swiss Banking” demonstrates that Swiss banks stand to benefit from global turmoil due to their enduring appeal as a financial safe haven. Nonetheless, they must respond proactively to emerging geopolitical realities. The issue of sanctions proves to be a central pivot that will ultimately shape competitiveness, reputation, and regulatory alignment.

While the overall outlook is positive, sustained success hinges on a firm commitment to evolving alongside the geopolitical risk landscape. Whether through technological innovation, refined regulatory strategies, or robust communication efforts, Swiss banks must continually enhance their resilience to navigate the uncertain terrain ahead.