The Bank of England thinks that this deserves serious consideration, and it is now the subject of debate in the UK. Beyond deposit insurance: how can the industry bear the cost of rescues? During the current crisis, around the world governments have gone much further than protecting only insured depositors – uninsured wholesale creditors have been bailed out too. The need for such support operations was evident if complete systemic collapse was to be averted. But it does raise big questions looking ahead – of fairness and of incentives. Once more, we need some principles for what are in effect official Capital of Last Resort (CofLR) operations. One possible starting point is how central banks have learned to think about bespoke liquidity-support operations, so called Emergency Liquidity Assistance. After explicitly recognising that occasionally liquidity support operations can end up providing de facto risk capital if the recipient deteriorates, the late Eddie George offered some thoughts on this in 1993; 9 “central banks are not in the business of providing public subsidy to private  9  “The pursuit of financial stability”, LSE lecture by the late Eddie George, Bank of England Quarterly Bulletin, 1997; and Mervyn King’s September 2007 letter to the Treasury Select Committee, “Turmoil in financial markets: what can central banks do?”  8  BIS Review 144/2009  shareholders. If we do provide support, we will try to structure it so that any losses fall first on the shareholders and any benefits come first to us.

The debt reduction process which private households in the US are currently undergoing and the consolidation of government finances in several European countries, in particular, are dampening economic activity in the short term. Nevertheless, the recovery should gradually gain some strength. However, it is by no means certain that this moderately positive scenario for the international economy will become reality. The international environment continues to be highly uncertain. The European sovereign debt problem still presents the biggest risk. It is unclear whether the measures taken so far will really succeed in defusing the situation permanently. Consequently, the sovereign debt crisis still has the potential to seriously affect the international financial system as well as international economic development. What does this international environment mean for the Swiss economy? The year 2012 is likely to be another difficult one. At CHF 1.20 against the euro, the Swiss currency is still overvalued and presents major challenges to our economy. Many companies have been forced to reduce their prices, which has lowered their turnover in nominal terms. Companies  2  BIS central bankers’ speeches  exposed to international competition, with considerable depth of production in Switzerland, in particular, are facing pressure on their profit margins. An additional factor is the muted outlook for the international economy. Combined with the continued high level of uncertainty with respect to the European debt problem, this is likely to limit the willingness to invest in Switzerland. However, there are reasons for a certain degree of confidence as far as our economy is concerned.