Second, as the SNB has repeatedly emphasised, given the cyclical risks in the Swiss mortgage and real estate markets, a temporary adjustment of banking system-wide capital requirements may have to be considered. To this end, on 1 June the Swiss Federal Council announced that a macroprudential instrument will be made available to the Swiss authorities from 1 July, in the form of a countercyclical capital buffer. Introduction of a macroprudential instrument To conclude, I would like to briefly describe how the countercyclical capital buffer will work. This instrument will enable the authorities to adjust capital requirements in the banking system, depending on potential excesses in the Swiss credit market. It is a preventive instrument that can be activated if necessary, to a level deemed appropriate. It can also be targeted to a specific segment of the credit market. Once the imbalances have been corrected, the countercyclical capital buffer will be deactivated, either immediately or gradually. In activating the countercyclical capital buffer, the aim of the authorities is twofold: First, it should increase the resilience of the banking sector, thereby helping to protect against the consequences of a correction of excessive credit growth. Second, it should help to lean against the build-up of such excesses. The Federal Council decides on the activation, deactivation and level of the countercyclical capital buffer, upon the proposal of the SNB. The SNB consults FINMA before submitting its  BIS central bankers’ speeches  3  proposal.

At end-March 2012, the share of loss-absorbing capital in the net balance sheet total was 2.7% at UBS and only 1.7% at Credit Suisse. This capital would, for example, be insufficient to absorb losses such as those experienced by UBS in the recent financial crisis (over 3% of the net balance sheet total). In addition, the question remains as to what extent the reduction of risk-weighted assets is matched by an effective reduction of economic risks, if the balance sheet total remains unchanged. For these reasons, the SNB considers that it is essential for both big banks to further strengthen their resilience. It recommends that UBS continue with the capital strengthening process – including, in particular, pursuing a policy of dividend restraint. Credit Suisse, meanwhile, should accelerate its process and take all action necessary to expand its lossabsorbing capital base significantly during the current year. The SNB also recommends that both big banks increase their transparency with regard to resilience. Concretely, they should publish information on their capitalisation as defined under Basel III once fully implemented – as, indeed, UBS has done in the two most recent presentations of its quarterly results. They should also regularly calculate and disclose their risk-weighted assets according to the Basel standardised approach. The results of such calculations would provide a basis for comparison with risk-weighted asset figures calculated using internal risk models. This comparison would enable the ongoing reduction of risks to be presented more transparently. Implementing these two measures is necessary from a financial stability perspective.