Thomas Jordan: Mortgage financing and the risks of a credit crunch in
Switzerland and abroad
Summary of a speech by Mr Thomas Jordan, Member of the Governing Board of the Swiss
National Bank, at the Schweizer Ökonomentag, University of Zurich, 10 September 2008.
The complete speech can be found in German on the Swiss National Bank's website (www.snb.ch).
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The international financial crisis has raised the question of the risks of a credit crunch on
domestic and foreign property markets. A credit crunch can occur if banks' ability to lend is
constrained, or if their lending practices become more risk averse. From a macroeconomic
perspective, a credit crunch is relevant because it can reinforce an economic slowdown.
The risks of a property market credit crunch differ from country to country. Mortgage markets
in the US and UK are showing clear signs of a credit crunch. Both countries have typically
seen a sharp slowdown in credit growth, falling house prices and weaker bank balance
sheets. Mortgage lending in these countries over the past few years has increasingly been
financed through securitisation. The current loss of investor confidence in securitisation has
thus hampered banks' ability to refinance mortgage contracts and, as a result, banks in both
countries are finding it harder to grant new mortgage loans. At the same time, falling prices
have dampened their risk appetite as regards lending. This decline in the supply of credit is
now weighing on economic developments in these countries.
For the Swiss mortgage market, there is currently only a small risk of a credit crunch. On the
one hand, there have been no widespread excesses on the Swiss property and mortgage
markets recently, which makes it unlikely that banks' appetite for risk will decline to any great
degree. On the other hand, opportunities for loan refinancing in Switzerland remain strong.
The structure of mortgage lending in Switzerland is quite varied, and for banks the
"Pfandbrief" mortgage bond is a refinancing tool that provides continuing strong opportunities
for loan refinancing, and has experienced something of a renaissance since the financial
crisis. As such, the already muted outlook for the Swiss economy is unlikely to suffer any
additional impact from a credit crunch on the property market.