Philipp M Hildebrand: Switzerland - the challenges of being and remaining a leading financial centre Speech by Dr Philipp M Hildebrand, Member of the Governing Board of the Swiss National Bank, at the Financial Management Association (FMA), European Conference Zurich, University of Zurich, Zurich, 3 June 2004. *  *  *  I am pleased to be here this evening to reflect on Switzerland: the challenges of being and remaining a leading financial center. Moreover, I am honored to share this platform with Peter Wuffli, Walter Kielholz and Bruno Gehrig. The Financial Management Association should be commended; you have assembled three outstanding leaders and representatives of the Swiss financial industry. I very much look forward to their comments. When I think about the Swiss financial industry, two closely linked thoughts come to mind: first, Switzerland’s status as one of the world’s leading financial centers and second, the important contribution of the financial sector to the overall vigor and resilience of the Swiss economy. Going forward, the key challenge for the Swiss financial industry will be to maintain its leading global status in a world of fierce competition. Because of the financial sector’s critical contribution to the overall economic well-being of the Swiss people, meeting this challenge is important not only to the financial sector but to all Swiss citizens who are concerned about the long-term vitality of their economy. Many of you are familiar with the relevant figures: roughly 10 percent of Switzerland’s real GDP derives from the financial sector.

In particular, it is essential from Malta’s point of view that the presence of subsidiaries of cross-border banks that are systemically important to a host country be given due weight in determining participation in the college of supervisors. International experience has also shown that state intervention may be necessary to resolve problems in the financial sector. The state is often the only entity in a democracy that has the political legitimacy, financial strength and credibility to support ailing institutions and, hence, restore confidence in the financial system as a whole. In extreme situations, which require the injection of public funds, the cost to the public purse can be very high. This is an additional reason why maintaining fiscal discipline in the shape of balanced budgets over the economic cycle is important. This would allow a buffer to be built up that could be used in exceptional situations if required, without jeopardising the sustainability of public finances. Finally, safeguarding the health of the financial sector in these challenging times also calls for prudent behaviour on the part of the market players themselves. Though not under any identifiable threat, Maltese banks should build on their existing strengths by reinforcing their capital base through the retention of a greater proportion of earnings; and, as domestic economic conditions are expected to weaken, loan loss provisioning levels may also need to rise. BIS Review 155/2008  5  The current crisis will not be over until confidence and trust are restored, and the credit channel starts to function fluidly again.