Given this situation, in 2013, the SNB made a proposal to the Federal Council, after consultation with the Swiss Financial Market Supervisory Authority (FINMA), that the sectorial countercyclical capital buffer (CCB) be activated for the first time, at 1% of riskweighted mortgage loans financing residential property located in Switzerland. The Federal Council acted on the proposal. Since last September, banks have therefore been required to provide more capital backing for residential mortgage loans in Switzerland. Certainly, momentum on the mortgage and real estate markets was dampened somewhat in 2013. However, the measures introduced by the beginning of 2013, such as the activation of the CCB as well as those taken by the industry itself, were insufficient to prevent a further build-up of imbalances. Therefore, the volume of mortgage lending was still rising at a substantially stronger pace than national income. As a result, in Switzerland as a whole, debt was increasing significantly faster than people’s capacity to offset this debt with income. This  BIS central bankers’ speeches  3  development is particularly critical because the correlation between mortgages and national income is very high, both in historical terms and compared with other countries. In addition, in an environment of persistently low interest rates, coupled with banks’ undiminished appetite for risk, the danger remained considerable that imbalances would build up further unless additional countermeasures were taken. In January 2014, therefore, acting on a proposal by the SNB, the Federal Council increased the CCB from 1% to 2% of risk-weighted positions financing residential property in Switzerland.

The low interest rate environment is with us for the foreseeable future and is caused in large part by durable structural factors.10 The interest rate below which monetary policy is accommodative has fallen in the euro area, as is the case in much of the developed world.11 Even once monetary policy normalises, interest rates are likely to remain below levels that were common in previous decades. Cost inefficiencies The second source of low profitability for euro area banks is enduring cost inefficiencies. Cost-toincome ratios remain high in the euro area relative to international peers. The euro area has too many banks, too many branches and too many bankers. The aggregate cost-to-income ratio of euro area banks reached 66% in 2018, up from 62% in 2010, as the dip in revenues was not offset by cost containment. While similar to that of peers in Japan and the United Kingdom, it is above the ratio typical for US banks, and substantially above the ratio of roughly 50% for Nordic banks. Reducing costs requires grasping the opportunities offered by technology. Banks have been able to make greater reductions in the density of the branch network in countries where the take-up of online banking is higher. The number of branches in the Netherlands and the Baltic states has halved since 2008, but progress in other countries has been much more limited. Technology can also help enhance operational efficiency by improving processes for loan origination and servicing and enable workloads to be shared better across employees in multiple locations.