With respect to bank capitalisation, the situation remained largely unchanged in 2014. First, the domestically focused commercial banks’ leverage ratios remained stable at high levels by historical standards. Second, these banks’ risk-weighted capital ratios increased slightly and are significantly above regulatory minimum requirements overall. Furthermore, stress test results suggest that most domestically focused banks should be able to absorb estimated losses without seeing their capitalisation fall below the regulatory minimum. Nevertheless, under the most relevant adverse scenarios for these banks, the losses would deplete a large proportion of their surplus capital. Experience in Switzerland in the 1990s, as in other countries, suggests that this would lead to a general weakening of the banking sector and significantly affect banks’ ability to lend, with negative and lasting repercussions for the real economy. The stress test results highlight the importance of banks holding significant capital surpluses relative to the regulatory minimum requirements. The activation of the countercyclical capital buffer in 2013 and its increase in 2014 has made a significant contribution in this respect. 2  BIS central bankers’ speeches  Risk of renewed increase in imbalances on mortgage and real estate markets Overall, imbalances on the mortgage and residential real estate markets have remained broadly unchanged since the last Financial Stability Report. From a financial stability perspective, this is a positive development. However, it is still too early to give the all-clear. On the one hand, imbalances remain at a high level and have not yet started to decline.

It could also include eradication of poverty, reduction in crime and environmental sustainability. In the current environment of greater transparency and enhanced communication channels, there is now greater awareness of the prevailing circumstances. This has produced high expectations. It has also reduced tolerance for inefficiency, poor performance, irregular practices and nondelivery of the results. The expectations are for a public sector that best serves its nation and that delivers the expected results in the most effective and efficient manner. Similar to the private sector, the public sector is confronted with a dynamic environment of rapid change. Approaches that have produced previous successes may now have become no longer relevant. In these situations, previous skills and capabilities will no longer be adequate. In addition, it will be the cumulative efforts of all parts of the public sector that will  BIS central bankers’ speeches  1  produce the results. It will no longer depend on a specific part of the system but on several parts of the system. Previous arrangements will therefore become no longer effective. New challenges that have become more complex will require new tools and systems to solve them. The organisation will thus need to be transformed to meet the changing requirements of the new environment. To contribute to a nation’s progress and development, therefore, demands for the ability to manage these new challenges. The role of the leadership in the public sector has thus changed significantly.