Instead, the SNB’s main concern is to conduct a monetary policy that serves the interests of the country as a whole. Our monetary policy operations have a direct impact on the SNB’s balance sheet, meaning that substantial losses may occur in individual years. Significantly,  2  BIS central bankers’ speeches  however, in the long term, our financial results should be positive, thanks to our monopoly on creating banknotes and sight deposits, which ensures low funding costs. The Swiss franc since the discontinuation of the minimum exchange rate Our two-pronged monetary policy is proving effective in reducing the relative attractiveness of the Swiss franc. After the sharp appreciation immediately following the discontinuation of the minimum exchange rate, the franc has weakened steadily against the euro, despite intermittent bouts of heightened financial market volatility during the summer. However, the Swiss franc remains significantly overvalued. For example, the real effective exchange rate – the Swiss franc’s exchange rate against a basket of currencies of our main trading partners – is still around 15% above its long-term average, compared to less than 10% at the end of 2014. The situation on the foreign exchange market has not yet normalised. Chart 3 shows that private capital outflows, which have traditionally balanced Switzerland’s structural current account surpluses, have turned into net inflows since the global financial crisis. Changing investor preferences are behind this reversal of capital flows. While global economic conditions have improved, substantial uncertainty remains, causing some investors to seek the relative safety of the Swiss franc.

According to these proposals the Tier 1 capital base should be sufficiently strong to ensure that banks are in a better position to absorb losses on both a going concern and a gone concern basis. The revised capital framework will strengthen the capital requirements for counterparty credit risk exposures arising from derivatives, repos and securities financing activities. As the existing regulatory ratios did not prevent institutions from taking on excessive leverage, moreover, the proposed leverage ratio should be a welcome addition to the regulatory toolkit. The ongoing deleveraging by banks is indeed having an adverse impact on the flow of credit to the real economy, accentuating the pro-cyclical effect. Financial institutions will, therefore, be required to build-up robust capital buffers during good times, which can be drawn down during periods of stress. The proposals also promote a more forward-looking provisioning to provide for future credit losses, and thus lessen the procyclical effect of the current “incurred loss” method. Finally, the introduction of a global minimum liquidity standard is foreseen that includes a stressed 30-day liquidity coverage ratio requirement as well as a long-term structural liquidity ratio. Moves are also underway to correct what is considered to be insufficiently transparent and accountable behaviour by credit rating agencies. After having underestimated the risks of mortgage-related bonds in the sub-prime saga, the agencies have recently featured in a perverse dynamic characterised by dysfunctional markets for certain sovereign securities in which prices do not reflect fundamentals, on the one hand, and the predictable rating downgrades, on the other.