15  For a detailed description of this principle of “guided discretion”, cf. SNB (2012). 16  Both measures are designed to have a dampening effect on house prices and mortgage volume momentum. The former will be effective from January 2013, the latter already from July 2012 with a transition period until November 2012. 6  BIS central bankers’ speeches  Here, international empirical evidence suggests that tighter capital requirements have, on average, a dampening impact on credit volume. This impact of tighter capital on lending is greater when the implementation period is shorter.17 Moreover, the increase in capital requirements may lead to a significant reduction in the likelihood of a systemic crisis.18 Expectations concerning the effectiveness of leaning against the credit cycle must remain realistic, however. There is no guarantee that activating the CCB will fully eliminate future imbalances in the Swiss mortgage and real estate markets. Inherent uncertainty regarding the strength of its impact and hence the appropriate calibration remains. Moreover, if banks hold significant capital cushions even before the CCB is activated, the desired countercyclical effect on credit growth may be weakened. We can note, however, that even if the CCB has no effect on aggregate credit growth, it will nonetheless be useful if lending is shifted from relatively weak banks (constrained by the CCB) to more resilient banks (benefitting from a sufficient capital buffer). Let us now turn to the fourth question pertaining to the functioning of the CCB: How does it perform with respect to potential side-effects?

The most important concern in this regard is that, if the CCB generates capital constraints at some banks, these banks will need to decide which sector to keep lending to. It may seem reasonable that institutions will prefer to keep lending to the booming sector, while cutting back on lending to other sectors. The design of the CCB takes such undesired side-effects into account. In particular, the sectoral approach alleviates this problem to some extent. By increasing the cost of granting credit to a given sector (real estate lending) relative to others, it should discourage lending to the former as it is “penalised” in terms of higher capital requirements. And, thanks to its dynamic nature, the CCB can be flexibly adjusted, should it still have undesired consequences in other segments of the credit market. Conclusion To sum up, the global crisis has clearly stressed the need for a more comprehensive approach to financial stability. The potential cost of a systemic crisis is significant. Remaining idle is no alternative. We must insist on addressing systemic risk issues head-on. This is the intent of macroprudential instruments. In Switzerland, financial stability risk is currently building up, driven by persistently strong momentum in the mortgage and real estate markets. Against this background, the availability of a tool such as the CCB is a significant step forward. The CCB is a “soft”, incentive-oriented instrument based on the principle of prudence. It can and will be used in a balanced and flexible way to deal with specific cyclical risks to financial stability.