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© 2007 International Monetary Fund June 2007

June 2007

IMF Country Report No. 07/199

This technical note on the banking system structure, performance, and medium-term challenges for Switzerland was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed in May 2007. The views expressed in this document are those of the staff team and do not necessarily reflect the views of the government of Switzerland or the Executive Board of the IMF.

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Front Matter Page

Financial Sector Assessment Program Update

Switzerland

Technical Note The Swiss Banking System—Structure, Performance, and Medium—Term Challenges

MAY 2007

International Monetary Fund

Monetary and Capital Markets Department

Contents

• I. Overview

• II. Background and Medium-Term Trends

• III. Assessing Cost Efficiency: an Application of Data Envelopment Analysis.

  • A. Input-Orientated Efficiency Measures

  • B. Malmquist Index of Total Factor Productivity Growth

  IV. Data and Results

  • A. Baseline Results: Cost Efficiency Across Bank Segments

  • B. Cost Efficiency in the Domestically-Oriented Retail Banks

  • C. A Cross-Country Perspective

  • D. Technical Progress and Efficiency Change in the Swiss Banking System

• V. Conclusions and Policy Recommendations

• References

• Tables

• 1. Indicators of Banking System Structure in Comparator Countries, 2005

• 2. Indicators of Performance in Comparator Countries, 2005

• 3. Efficiency Scores, Model 1, 2005

• 4. Evolution of the Efficiency Scores under Model 1, 1996–2005

• 5. Efficiency Scores under Model 2, 2005

• 6. Summary Efficiency Estimates for the Domestically Oriented Retail Banks, 2005

• 7. Distribution of Cost Efficiency by Segments and Quartiles of bank Size, 2005

• 8. List of Sampled Bank Segments by Country

• 9. Cross-Country Estimates of Cost Efficiency by Segments, 2003

• 10. Evolution of the Average Malmquist Index, 1997–2005

• 11. Average Malmquist Indexes by Bank Segments, 1997–2005

• Figures

• 1. An Illustration of Technical and Allocative Efficiency

• 2. An Illustration of the Distance Functions Under CRS

• 3. Distribution of Cost-Efficiency Estimates for the Domestically-Oriented Bank

• 4. Cumulated Evolution of the Malmquist Productivity Index, 1996–2005

• Appendix

• I. The Basic Input-Orientated DEA Probem and An Output-Orientated Malmquist Index