Both exchange rates and interest rates then determine monetary conditions in Switzerland, and thus eventually output and inflation. Although short-term interest rates are the main monetary policy instrument, the SNB has, in recent years, been using exchange rate interventions as an additional tool. Due to the safehaven status of the Swiss franc, the SNB has been active on the foreign exchange market. We are also willing to intervene, as required, as part of our current monetary policy. Once again, banks have been at the heart of monetary policy transmission. They have acted as intermediaries of the SNB’s foreign exchange interventions. 4 With depressed international demand and a strong Swiss franc weighing on GDP, credit availability has been crucial for the domestic economy. Low interest rates and ample liquidity provision by the SNB have facilitated banks’ intermediation activities. In short, the SNB’s  4  2  For further details, cf. Lukas Altermatt and Romain Baeriswyl, The effect of the monetary base expansion on the balance sheet of domestic banks, SNB Quarterly Bulletin, 1/2015, and Raphael Auer, A safe haven: international demand for Swiss francs during the euro area debt crisis, SNB Quarterly Bulletin, 2/2015. BIS central bankers’ speeches  policy has supported the banks’ provision of credit to the real economy. The banking sector, which is traditionally procyclical, has in turn benefited from improved economic conditions. In order to fulfil our mandate we need a stable banking system. Financial stability is key, both for the SNB and the whole economy.

In a crisis there should not be any need for systemically important banks to be bailed out by the state. Monetary policy and macroprudential measures are closely linked. Sometimes monetary policy demands a low policy interest rate in order to ensure price stability and support economic activity, especially if the Swiss franc is overvalued. However, low interest rates can translate into a build-up of imbalances on the mortgage and real estate markets. To increase banks’ resilience to the correction of these imbalances, macroprudential measures are needed. The countercyclical capital buffer, for which the SNB may propose changes, is one such measure. Stability: a long-term asset with potential short-term costs Ladies and Gentlemen, price stability and financial stability are indeed important long-term assets for the financial sector and the entire economy. As an independent central bank with its own currency, the SNB has been successful in providing long-term stability. Switzerland has had significantly lower and more stable inflation rates than most other countries (cf. chart 2). Our long history of price stability, a reliable political and legal environment, and efficient institutions have resulted in an interest rate bonus. This is more pronounced for the long-term part of the yield curve than for the short-term part. Ten-year government bond yields have typically been lower in Switzerland than in Europe and the US. In addition, having its own currency plays an important role in Switzerland’s attractiveness. It makes it possible for us to conduct our own monetary policy, with monetary conditions adapted to the Swiss economy.