For example, in recent years, the UK’s central counterparty for derivatives, London Clearing House (LCH) Limited merged with Clearnet SA, while the Euroclear Group acquired CREST, the securities settlement system for the UK and Ireland. The Euroclear Group currently provides domestic securities settlement services in 5 European countries as well as international settlement services. Such tie-ups are of course an international extension of the microeconomics of infrastructure provision outlined above, exploiting economies of scale and network externalities. But, at the same time, they introduce common business risks and cross-border dependence on core systems, thus providing another channel for problems to spill across borders. Such cross-border linkages consequently add a layer of complexity to supervisory arrangements, making international coordination among the public authorities essential. Linkages arising at the user level are again important here. As banks operate in multiple markets, there is increasing scope for shocks to propagate across borders. That may arise from the increased centralisation of banks’ liquidity risk management. To the extent that banks use the foreign exchange markets to recycle surplus liquidity in one system to meet a shortfall in another, or else take advantage of settlement links between securities settlement systems to transfer collateral across borders, liquidity risk may be reduced. But, to the extent that banks respond to the availability of mechanisms for reallocating liquidity between systems by reducing their aggregate holdings, a bank may be more vulnerable to simultaneous liquidity demands across markets or to operational disruption to such mechanisms.

Another option would be to introduce a multiplier on model-based risk weights for specific positions, as already imposed by FINMA for some mortgage loans. Efforts are underway at FINMA, supported by the SNB, to analyse potential differences between the two approaches. In this context, the SNB recommends that the big banks increase transparency with regard to their risks. This includes, among other things, publishing their internal measures of total risk. Disclosing RWA according to the standardised approach in addition to model-based RWA would likewise lead to greater transparency with regard to risks. Greater transparency would help to make changes in model-based RWA easier to understand, and thereby increase the credibility of the model-based approach. Domestically focused banks: resilience and lending policies I would now like to turn to our assessment of domestically focused commercial banks. At present, the risks for these banks are primarily linked to the situation and momentum on mortgage and real estate markets. In an environment of historically low interest rates, there has been a build-up of imbalances on these markets. On the one hand, the ratio of mortgage loans to GDP has increased to very high levels in a historical comparison. On the other, growth in real estate prices has been persistently stronger than what can be explained by fundamental factors. Owing to these developments, measures were announced in June 2012 to reduce risks in the Swiss mortgage market. These measures include a revision of the self-regulation rules for mortgage lending and stricter capital requirements for mortgage loans.