Even if the extent of the slowdown in growth was assessed differently by the different forecasting institutions, there can be no doubt about it: The SNB’s decision has had far-reaching consequences for the Swiss economy. Notwithstanding this, I will argue in my remarks that – while the current situation is unique – with regard to both the Swiss franc exchange rate and the interest rate environment – it is not fundamentally new. I will therefore focus first on the magnitude of the Swiss franc strength. Afterwards, I will examine the importance of the negative interest rate in the current environment. Finally, in the last part of my speech, I will discuss the impact of low interest rates on financial stability. Consequences of the strong Swiss franc Let me start by looking at the exchange rate. Since the discontinuation of the minimum exchange rate, the Swiss franc has appreciated considerably, and many industries and companies have been – and continue to be – affected. The export industry, in particular, is suffering. However, companies exposed to competition from abroad, retail businesses close to the border, the tourism industry and domestic suppliers of exporters are also facing major challenges. While the current situation is difficult, a strong Swiss franc does not in itself fundamentally change the parameters for Switzerland. Switzerland’s economic and political stability and the structural current account surplus has created considerable demand for our currency in the past, too. Moreover, uncertainties or crises have often cemented the Swiss franc’s safe haven status, resulting in additional cyclical appreciation.

That is achievable for relatively simple commercial banks operating in a single jurisdiction, and all of whose contracts are under the law of that jurisdiction. It is harder for so-called Systemically Important Financial Institutions (SIFIs), spanning many markets, jurisdictions, and currencies, with complex counterparty relationships. As one international colleague put it, the standard toolkit would face an “exponentially greater challenge”. Top-down capital restructuring: bail-in That is why resolution authorities in a number of countries are exploring how to execute “top-down” resolutions of complex groups, employing bail-in of debt issued by the holding company or top-level operating company. The US and UK have been working together very constructively in planning how to operationalise that strategy; and if we continue to make progress I hope that we will be able to say more about it over the next few months. Imagine that a large, complex, global firm – just one legal entity for the moment – has 20 lines of business, each the same size, which is to say using the same amount of balance sheet and capital. Imagine it is 50 times levered. Now imagine that one of those lines of business is completely toxic, worthless. The firm is insolvent, bankrupt. Unless it can be resolved, it must cease trading and go into insolvent liquidation. But, in this stylized example, only a single line of business is toxic; the other 19 are fine. In other words, the franchise has value. In the non-financial corporate sector, there are established tools for this.