What repercussions does the latter aspect – low interest rates – have on banks in Switzerland in this generally difficult environment? This is the question that I would like to address in detail this evening. I will begin by briefly explaining why the negative interest rate in Switzerland is currently necessary from a monetary policy perspective. I will then show the extent to which this interest rate environment has influenced the profitability of Swiss banks. I will conclude with a discussion of the associated risks to financial stability, which require special attention. Page 2/10  Negative interest rate as a monetary policy imperative given low rates worldwide To answer the question of why the negative interest rate in Switzerland is currently necessary from a monetary policy perspective, it is worth looking somewhat further into the past. The last 30 years have seen interest rates around the globe trending downwards, as illustrated by the rates on ten-year government bonds in Switzerland, Germany and the US (slide 2). A key explanation for this downward trend is that both inflation rates and their volatility have declined worldwide. Consequently, investors require less compensation for the risk of a fall in the value of money due to inflation. The literature gives further reasons for the general decline in interest rates since the mid-1980s. 1 The propensity to save has increased overall, while at the same time the demand for investment capital has receded. This combination of higher supply of and lower demand for capital exerts downward pressure on interest rates.

Providing this confidence can be enhanced by creating a broader and robust mechanism to measure performance. Performance measurement systems that accord greater quantification of development impacts will strengthen accountability frameworks, with many attendant benefits. It will further reinforce the Government’s developmental agenda. It will provide a mechanism to address market failures. It will ensure that funds are allocated to the right sectors within the economy. Effectively done, it 2/4  BIS central bankers' speeches  will increase the development financial institution’s credibility, reputation and potential as key players in advancing socio-economic development. In Malaysia, we are encouraging these institutions to improve performance measurement frameworks to better capture the development impact of business activities. A number of them are already implementing frameworks to provide broader performance measures for value-based intermediation activities (VBI) which focus on the impact on the economy, community and environment. Of particular importance, they need to measure granular outcomes such as creation of good paying jobs and expansion of capacity and capability. Another commendable example is the performance measures published by the Industrial Development Corporation of South Africa (IDC), which linked its activities to the creation of more than 340,000 jobs in the economy between 2013 to 2017. Out of this, 10% were based in rural areas. Approximately USD3.3 billion of IDC’s financing-related activities could also be traced to the specific economic empowerment of targeted groups such as youth and women.