The offensive component of a comprehensive Swiss strategy must be an unequivocal commitment from politicians, regulators and financial sector representatives to competition and free markets. Such a commitment will foster innovation which will ensure the long-term viability of Switzerland as a leading global financial center. A commitment to competition includes a firm commitment to an effective regulatory system based on transparency, proportionality, predictability and an uncompromising fight against abuse. Such a regulatory framework does not stand in opposition to a commitment to free markets. To the contrary, it strengthens free markets by upholding the integrity of markets. Regulatory authorities must not loose sight of the primary aim of regulation: to uphold the integrity of markets and not to impede the functioning of markets. Let me conclude my brief formal comments with a specific example of how innovation in the face of global competitive pressures can foster the viability of the Swiss financial center. In recent years, hedge funds have become an important segment of the global asset management industry. Recent figures indicate that total assets invested in hedge funds are approaching the USD 1’000 billion mark. In comparison, the total size of the open-end mutual funds industry in the United States is USD 7’500 billion. According to industry figures, the annual growth rate of the hedge fund industry appears to have accelerated to a level in excess of 15% in recent years. These figures suggest that investors increasingly look for largely unconstrained investment activities with a focus on absolute return.

Particularly in the area of wealth management which comprises over half of the total added value of the banks, Switzerland is clearly one of the world’s leading provider of services. The value of total assets managed in customer accounts in domestic banks as of the end of the year 2003 amounts to CHF 3’300 billion, of which nearly 60% is held by foreigners. According to various estimates, this corresponds to approximately one third of the world’s total private wealth managed abroad. Much has been said and written about the various strengths of the Swiss financial center which account for the dominant global position in wealth management. Political, economic and monetary stability, know-how, traditional high quality of services provided, guaranteed protection of privacy and strict conditions ensuring the prevention of abuse are all key ingredients to Switzerland’s past and future success. In the current global market place, some of these strengths represent structural competitive advantages. The Swiss authorities and the Swiss financial sector representatives rightly  1  Charles P Kindleberger (1974): “The Formation of Financial Centers: a Study in Comparative Economic History”, Princeton Studies in International Finance, No 36, Princeton: Princeton University, November. BIS Review 34/2004  1  make great efforts to defend these structural competitive advantages as much as other sovereign countries defend theirs. Nonetheless, in a fierce global competitive environment, defense is a necessary but not a sufficient condition for sustained success.