Among others, we use indicators at an aggregate level that have become known and established in specialist literature as ‘early warning indicators’ for financial crises. 6 These indicators measure vulnerabilities through the deviation of prices and credit volume from the corresponding fundamentals and long-term trends. Examples include the ratio between real estate prices and income (the price-to-income ratio) and deviations in the ratio between mortgage volumes and GDP from their long-term trend (the credit-to-GDP gap). Based on experiences from previous crises, a sharp increase in these indicators points to a higher probability of a crisis. Besides aggregate data, we also consider detailed individual loan data, especially in order to assess whether the mortgage loans granted are sustainable. An important data source in this respect is our ‘Survey on new mortgages’, or ‘Hypo_B’ for short. 7 This survey gives us comprehensive, anonymised individual loan data of newly granted mortgage loans from the 27 largest banks in Switzerland. These banks cover around 90% of the domestic mortgage market. The information gained includes borrower characteristics as well as detailed information on the lending conditions and on the pledged properties. The data allow us to closely monitor developments in credit risk, such as affordability and loan-to-value (LTV) risks. Finally, an essential contribution to our risk monitoring is made by stress tests. These enable us to estimate the losses that banks could suffer in various crisis scenarios. Such loss potential estimates are then compared to the capitalisation of the individual banks.

How we fulfil our tasks Ladies and gentlemen, in light of the high loss potential of mortgage and real estate market crises, the question is: How can systemic risks originating in these markets be contained? From a macroprudential perspective, three elements stand out: identifying the risks at an early stage, containing their growth, and strengthening banks’ resilience. I would like to explain these three elements in greater detail. Let me begin with the SNB’s risk monitoring, before speaking about the macroprudential instruments we have at our disposal. 5  Cf. the SNB focus article Household wealth in Switzerland: concepts and trends in an international comparison, available online on the SNB’s data portal: data.snb.ch/en/topics/texts#!/doc/focus_20210429 (consulted on 30 August 2021). Page 4/12  Risk monitoring  In identifying risks at an early stage, we are interested in vulnerabilities on the mortgage and real estate markets and in their possible consequences for the banking sector. Vulnerabilities manifest themselves primarily in inflated real estate prices and unsustainable mortgage lending. Both entail a heightened susceptibility to corrections in the form of sudden drops in prices and sharp rises in loan defaults. Our assessment of these risks is based on a broad range of data and methods. The fact that such a broad range is required reflects the high level of uncertainty involved in measuring these risks, as well as the different strengths and weaknesses of the individual indicators used. The more indicators there are pointing to a certain development, the clearer the assessment becomes.