News conference
Berne, 14 December 2017
Fritz Zurbrügg
Introductory remarks by Fritz Zurbrügg
In my remarks today, I would like to address some of the developments currently taking place
in the field of financial stability. I shall look at the big banks first before turning to the
domestically focused banks. I will conclude with a few words on the new banknote series.
Big banks
As Thomas Jordan has already noted, the international economic environment has continued
to improve since the last news conference in June. Conditions on the financial markets have
remained stable. Premia for bank credit default swaps, for instance, have barely changed since
June. Premia have thus settled at lower levels again following the turbulence in 2016.
Against this positive backdrop, both of Switzerland's big banks remain on track to meet the
requirements of the 'too big to fail' regulations with respect to resilience. This first pillar of
the regulations covers requirements pertaining to the going-concern loss-absorbing capacity
of systemically important banks. Both Credit Suisse and UBS already comply fully with the
final1, risk-weighted requirements. However, further improvement is needed with respect to
the leverage ratio.
Both of the big banks have also made progress on the second pillar of the regulations,
'resolution', which covers the orderly restructuring and wind-down of a bank that can no
longer function as a going concern and is thus deemed to have become a gone concern. With a
view to managing such a crisis scenario, Credit Suisse as well as UBS have increased their
gone-concern loss-absorbing capacity by issuing further bail-in instruments, which can be
converted into equity in the event of impending insolvency. As we explained in our Financial
Stability Report published in June, since the 'too big to fail' regulations came into force,
Credit Suisse and UBS have also taken important organisational steps to improve their
resolvability. Despite these positive developments, the two big banks still need to make
further progress if they are to fully comply with the second-pillar requirements. This applies
both to their gone-concern loss-absorbing capacity and their resolution planning.
Full compliance with all of the 'too big to fail' requirements will further strengthen the big
banks' going and gone-concern loss-absorbing capacity as well as improve their resolvability
in a crisis. Both of these sets of requirements must be addressed if Switzerland's 'too big to
fail' problem is to be solved.
Domestically focused banks
I would now like to turn to the domestically focused banks. These institutions' biggest risks
continue to stem from the mortgage and real estate markets. I will make three points in this
regard.
First, imbalances on the mortgage and real estate markets persist. Although mortgage growth
has remained relatively low in 2017 - as in the previous year - developments on the real
estate market show a somewhat different picture: price growth in the residential property
segment2 had been falling since 2013, but recently transaction prices have started to pick up
again. Moreover, with the exception of a few quarters (including the third quarter of 2017),
prices in the residential investment property segment have risen markedly since 2013. As
prices over this period have increased more strongly than fundamentals such as rents, risks
have accumulated in this segment; it is thus especially vulnerable to a substantial correction in
the medium term. This situation is compounded by brisk construction activity in the rental
apartments segment, which could lead to oversupply. Signs of this can already be seen in
rising vacancy rates.
Second, the risk appetite of domestically focused banks remains high. This is particularly
evident from the affordability risk data. The share of new mortgages with high loan-to-income
ratios has risen significantly in recent years and has reached a historical high. The interest rate
risk of domestically focused banks likewise remains high, while their interest margin
continued to decline in the first half of 2017. As long as there is pressure on margins,
incentives for domestically focused banks to increase risk-taking will remain substantial.
Third, notwithstanding the risks in the macroeconomic environment and the banks' high risk
appetite, SNB stress tests continue to suggest that, overall, domestically focused banks'
resilience remains adequate. Thanks to robust capitalisation, most of these banks would be
able to absorb the losses likely to be incurred in adverse scenarios; given the risks I have
outlined, this is welcome. In the future, too, it will be decisive for the stability of the financial
system that banks hold sufficient capital to cover the risks on their books - irrespective of
ongoing margin pressure.
The SNB will continue to monitor developments on the mortgage and real estate markets
closely, paying particular attention to the residential investment property segment as well as
to risks emanating from mortgage lending. In parallel, it will continue to regularly reassess the
need for an adjustment of the countercyclical capital buffer.
Ninth banknote series
Allow me to close with a few remarks about the new banknote series. This year, the SNB
issued two further denominations: the new 20-franc note was released in May and the new
10franc note in October. So, half of the denominations in the new banknote series have now
entered circulation. I am happy to report that things have been progressing well and the
issuance of the new banknote series has been very smooth so far. To date, returns of
eighthseries banknotes to the SNB have also been in line with our expectations.
As announced, the next denomination, the 200-franc note, will be issued in autumn 2018. The
1000-franc note and the 100-franc note will follow in 2019. The SNB will announce the
precise issue dates well in advance.