News conference  Berne, 16 June 2022 Andréa M. Maechler  Introductory remarks by Andréa M. Maechler I will begin my remarks with a review of developments on the financial markets over the past half-year. I would then like to discuss the lowering of the threshold factor mentioned by Thomas Jordan. Situation on the financial markets Volatility on the financial markets has increased again significantly since the beginning of the year (cf. chart 1). This was driven by the sharp rise in inflation abroad and by attendant expectations regarding a speedier tightening of monetary policy – especially in the US. Indeed, the Fed has already raised the target range for its federal funds rate in several increments and signalled its intention to increase rates further. In addition, the war in Ukraine and the associated sanctions have exacerbated existing supply bottlenecks and led to surges in energy and commodity prices. These developments have dampened growth expectations and increased uncertainty on the financial markets. On the government bond markets, the change in monetary policy direction has had a pronounced impact. In the US, nominal ten-year Treasury yields have risen almost 2 percentage points since the beginning of the year and most recently were standing at well above 3%. Shorter maturities were particularly affected by this revaluation, with a narrowing of yield differentials between long and short maturities. Such a flattening of yield curves is typical in a period of rising inflation and interest rate expectations.

Both banks’ capital ratios exceed requirements and are above average by international comparison. Thanks to these capital buffers, the two globally active banks are well placed to face today’s challenging environment. The direct impact of the war in Ukraine should be limited given the comparatively low exposure of Credit Suisse and UBS to the warring parties. However, an escalation of the war or a further widening of sanctions could adversely affect the economic environment and financial market conditions. The SNB addresses such adverse developments in its analysis of standard stress scenarios. This analysis shows that the loss potential for both banks remains substantial. Taking on risk is an integral part of the banking business. From the financial stability perspective, it is crucial that these risks be backed by sufficient capital. Our stress scenario analysis underlines that the ‘too big to fail’ capital requirements applicable to the systemically important banks in Switzerland are necessary to ensure adequate resilience at Credit Suisse and UBS. Domestically focused banks I shall now turn to the domestically focused banks. The profitability of these banks increased slightly in 2021. Improved cost efficiency and lower provisions for credit losses offset the decline in interest rate margins. As in previous years, the domestically focused banks improved their capital position by retaining earnings. Sustainable profits and large capital buffers are essential, as they allow banks to absorb losses and continue lending to the economy during periods of stress. Two sources of risk are of particular relevance for the domestically focused banks in the current environment.