It continues to recommend that the big banks disclose RWA according to both the model-based approach and the model-independent standardised approach. This recommendation is in line with increasing efforts being made at international level. Disclosing RWA according to the standardised approach would provide market participants with additional information for assessing the level of, and changes in, model-based RWA. In this context, the analysis of RWA being carried out by FINMA with the support of the SNB will play an important role. The big banks have already provided the necessary data by calculating RWA based on the standardised approach. Now the analysis will focus on the question of whether, and why, RWA based on the banks’ internal models differ from those based on the model-independent standardised approach. Differences must be well explained and have a sound economic rationale. If the analysis does not reveal any substantial and inexplicable differences, this would strengthen the credibility of the model-based approach. Conversely, if substantial differences cannot be explained, corrective measures would need to be considered. Domestically focused commercial banks I would now like to turn to the domestically focused commercial banks. In 2013, these banks further increased their already high exposure to mortgage and real estate market risk. First, growth in domestically focused banks’ mortgage lending was almost unchanged from the previous year. By contrast, the big banks’ lending growth decreased significantly in 2013. Second, domestically focused banks’ risk appetite in mortgage lending remained high overall.

Nonetheless, imbalances built up further in 2013, thereby justifying the increase in the level of the CCB, decided by the Federal Council in January 2014. Since then, imbalances have remained almost unchanged. On the one hand, momentum on the mortgage market slowed somewhat during the first quarter of 2014. On the other, during the same period, the rate of real estate price growth remained similar to that observed over the last few quarters, only slightly exceeding the growth of fundamental factors. From a financial stability perspective, these are welcome developments. Experience shows, however, that short-term changes in momentum do not necessarily imply a change in trend. Given the persistence of the low interest rate environment, banks and authorities should remain alert and take the necessary steps to keep risks for financial stability in check. First, measures giving banks stronger incentives to pursue a more cautious mortgage lending policy should be considered. Such measures should target both the owner-occupied residential property and the residential investment property segments. Efforts should now be directed towards preparing regulatory measures that could be implemented swiftly should momentum pick up again on the mortgage and residential real estate markets. Second, interest rate risk exposure in the banking book should be appropriately backed with capital. Under the aegis of the Basel Committee on Banking Supervision, international standards on capital requirements for interest rate risk are currently being developed. Given the significance of this risk factor, domestically focused banks should ensure they adopt a prudent stance towards measuring and managing this risk.