In a possible downturn, authorities can release the CCyB, as many did during the pandemic, freeing up capital that banks can use either to absorb losses or to lend to the real economy. This mitigates the likelihood of a downward spiral of emergency credit  2  At the end of 2020, total banking sector assets stood at roughly CHF 3,800 billion. This is equivalent to around 500% of Swiss GDP – a high ratio by international standards. tightening. Finally, the activation of a CCyB could increase lending costs and reduce credit growth, thereby dampening the build-up of vulnerabilities. In theory, the range of feasible instruments is broad. In practice, the design and character of macroprudential instruments are typically adapted to country-specific circumstances in order to increase their acceptance and effectiveness. Let me explain how we have achieved this in Switzerland. In Switzerland, three agencies share a mandate to contribute to financial stability: the SNB, the Swiss Financial Market Supervisory Authority (FINMA), and the Federal Council and administration. These authorities have directly involved banks in the design of macroprudential instruments. In fact, the borrower-based instruments implemented in 2012 build on a pre-existing tradition of qualitative self-regulation guidelines of the Swiss Bankers Association concerning mortgage lending. Authorities and banks have worked together to complement these qualitative guidelines with quantitative requirements concerning the degree and speed of amortisation and the necessary down payments by borrowers. These quantitative guidelines serve now as minimum standard requirements.

10 The preexisting capital buffers available in the banking system, globally and in Switzerland, played a key role in this regard. The continued credit flow, together with extensive public support measures, helped firms and households bridge their income and liquidity shortfalls. Hence, concerns that the economic shock from the pandemic would be amplified by banks scaling back their lending have not materialised. A qualitative survey launched by the SNB in 2020 shows in fact that loan rejection rates did not increase significantly, even in the most acute phase of the pandemic, and virtually no banks reported their own capital situation as a factor limiting credit supply. 11  Macroprudential policy beyond the pandemic We have seen so far that macroprudential policy can help to contain the build-up of vulnerabilities and strengthen banking sector resilience. The pandemic has moreover shown us that a well-capitalised banking sector can dampen the economic impact of shocks, contributing to a faster recovery. So where do we stand today? According to our monetary policy assessment last week, the global economic recovery is expected to continue, although somewhat subdued by the economic consequences of the war in Ukraine. At the same time however, financial system vulnerabilities are increasing. Several national authorities and international institutions have highlighted stretched valuations, in particular in real estate markets, and are pointing to high levels of corporate and sovereign indebtedness. Let me elaborate further, focusing on real estate markets. As we discussed earlier, these markets are mostly credit financed so that 9  Cf.