Niklaus Blattner: System stability and security of the systems Summary of a speech by Prof Dr Niklaus Blattner, Vice-Chairman the Governing Board of the Swiss National Bank, at the Luzerner Tage für Informationssicherung (LUTIS, conference on information security), Lucerne, 25 May 2004. The references for the speech can be found on the Swiss National Bank’s website. *  *  *  The stability of the banking system and the security of the financial market infrastructure - including the stock exchanges and especially payment and securities settlement systems - have become an important concern of central banks all over the world in recent years. This has notably happened against the background of the numerous financial crises witnessed during the past decades. Moreover, events such as 9/11 have heightened awareness for the security of the financial markets and other infrastructures. In Switzerland, the growing importance of system stability has also been reflected in the new National Bank Act, which entered into force on 1 May 2004. Within the framework of its principal mandate of pursuing a monetary policy in the interests of the country as a whole while at the same time ensuring price stability, the Swiss National Bank (SNB) is legally obliged to make a contribution to system stability and to facilitate and secure the operation of cashless payment systems. In implementing its mandate, the SNB takes preventive measures as well as measures aimed at overcoming crises. For instance, in a crisis the National Bank plays an important role in providing liquidity.

The activities and practices at large, complex financial organizations are simply too intricate and evolve too quickly to be fully described ex ante in regulation. Banking supervision works in concert with regulation as the more flexible element of banking policy. Supervisory policy and standards can, and do, evolve over time to reflect the evolution in practice in the banking industry and in financial markets. Overall, supervisors are guided by the mandate to identify any practices or conditions at supervised firms that are a threat to the safety and soundness of those firms – and, of course, to ensure that the firms take all necessary steps to promptly remediate any such conditions. Critically, the definition of what constitutes “safe and sound” is not hard-coded into regulation, but is guided by the information and analysis done by supervisors and other Federal Reserve staff, such as economists, attorneys and market analysts. Supervisory expectations and standards are expressed through public guidance such as Supervision and Regulation Letters (SR Letters), publicly-posted examination manuals and other guidance. On a day-to-day basis, banking supervisors collect information on financial institutions through examinations and analysis. Examiners look at key aspects of a supervised firm’s businesses and risk management functions. They use this information to assess the adequacy of the firm’s systems and processes for identifying, measuring, monitoring and controlling risks at the firm and in the financial sector more generally. That said, the ultimate responsibility for risk identification and risk management remains with the supervised institution.