In respect of the Mudharabah depositors, any adverse shock to the financial performance of the asset portfolio in the balance sheet will be directly transmitted to the liability side, resulting in an adverse impact on the returns to the investment depositors. Islamic financial institutions have a fiduciary accountability in ensuring that depositors’ funds are prudently managed and that the risk-adjusted returns on investments are maximized. The ability to maximize risk-adjusted returns on investments and sustain stable and competitive returns to depositors will contribute to promoting confidence in the Islamic financial industry. Leveraging on information technology As we forge ahead, successful financial institutions will be those that are able to exploit the full potential and opportunities that arise from the IT revolution. In embracing new leading edge technology, the potential for the Islamic financial industry to provide new products and services will be enhanced. It also represents the potential to increase access to financial products through a wider range of new delivery channels. Greater application of IT in the industry can also enhance efficiency by driving down costs for consumers and businesses. Other areas include leveraging on IT in making strategic decisions in the alignment of business, in elevating institutional capacity and operational efficiency and strengthening risk management capabilities. The advent of Basel II for conventional banking has compelled institutions to make strategic investments in technology and risk management systems to be equipped in making the required quantification of credit, market and operational risk.

With the exception of some pronounced swings in mid-September, rates implied by USDCHF and other Swiss franc FX swaps have largely moved sideways since the rate hike, and they are at around 0%. Several institutions active in the FX swap market still hold excess reserves. This has had the effect of pushing implied rates from Swiss franc FX swaps close to the lower remuneration rate for reserves. Transmission in the FX swap market is thus not yet complete. Concluding remarks Let me summarise today’s speech as follows. The past two years have posed significant challenges for central banks. Chief among them has been the resurgence of inflation. Confronted with this situation, central banks around the globe, including the SNB, have tightened their monetary policies. On 22 September – less than two months ago – the SNB ended the period of negative policy rates that had prevailed since January 2015. With the transition to a positive policy rate, we also adopted a new approach to implementing monetary policy in the Swiss franc money market. We hope to have demonstrated today the rationale for our new approach, and to have explained how this approach works in practice to allow us to both steer money market rates and support interbank activity in the Swiss franc money market. Page 9/10  References Berentsen, A., Kraenzlin, S. and Müller, B. (2018), Exit strategies for monetary policy, Journal of Monetary Economics, 99, 20–40. Fuhrer, L., Jüttner M., Wrampelmeyer, J. and Zwicker, M. (2021), Reserve tiering and the interbank market.