Our current negative interest rates are more effective since they impact overall macroeconomic conditions without loopholes and because they do not interfere with trading freedom. Although negative interest rates may be painful for banks and investors in general, they are important measures for guaranteeing long-term macroeconomic stability under the current circumstances. They make the holding of Swiss assets relatively more expensive. In this way, they dampen the upward pressure on the Swiss franc and reduce the adjustment costs for the Swiss economy. They thereby also support the financial sector. Negative rates are thus a fundamental pillar of our current monetary policy. It is, however, also important to recognise that negative interest rates are a response to the current international environment and do not represent a long-term equilibrium. Challenges ahead and long-term perspective Ladies and gentlemen, I am coming to my final comments. Looking ahead, a robust and wellfunctioning financial sector will remain of utmost importance to Switzerland. It makes a major contribution to national GDP and provides vital financial services to the economy. These functions are also required during business cycle troughs and at times of exceptional policy measures. It is therefore important that banks remain resilient in difficult circumstances. It is crucial that the Swiss financial sector adapts to the new environment and meets the current challenges. The macroeconomic cyclical headwinds in the recent crisis were followed by changes in the regulatory environment such as Basel III, the ‘too big to fail’ measures for systemically important banks and the countercyclical capital buffer.

With close to 120,000 employees 8 in 2014, the banking sector is a major employer. The size of the banking sector, as measured by the ratio of total assets to GDP, is high by international standards. 9 Macroeconomic stability is thus a long-term asset for Switzerland. Low interest rates make borrowing conditions for firms and households cheaper. This leads to higher investment and supports the real sector. Macroeconomic stability is not only a precondition for sustained economic growth, but has helped to build a stable and robust financial sector. It is the longterm stability, combined with high quality work, which has helped create ‘brand Switzerland’. The Swiss financial sector has not only benefited from this brand but also contributed to its international propagation. However, long-term stability can sometimes be associated with short-term costs. As a small open economy, Switzerland can be subject to short-term exchange rate volatility resulting from the safe-haven status of its currency. The costs of this volatility are substantial at times. Strong fluctuations in the Swiss franc have had major effects on the Swiss economy in the past. For example, in the early 1990s, during the European Monetary System crisis, the Swiss franc appreciated strongly against European currencies. The entire economy had to adjust to a strong currency. More recently, Switzerland has been particularly heavily affected by international disturbances since the beginning of the financial crisis. The Swiss economy and its inflation outlook have been subject to strong downside pressures, due to massive exchange rate appreciation, weak international demand, and volatile financial markets.