philipp hildebrand : current state of the swiss financial system and lessons learnt introductory remarks by mr philipp hildebrand, member of the governing board of the swiss national bank, at the end - of - year media news conference, zurich, 11 december 2008. * * * when we published our report on financial stability six months ago, i talked to you about the most important lessons that the snb had learned from the financial crisis. today, after a brief assessment of the current state of the financial system, i would like to tell you about progress in the follow - up from these lessons. the focus here is on capital and liquidity regulation. finally, i will speak briefly about a more cheerful topic that is unrelated to the financial crisis – the launching of a new series of swiss banknotes. the economic environment has sharply deteriorated... as you have already heard from mr roth, the economic environment has sharply deteriorated. the three big economic blocs – europe, japan and the us – are in recession, and growth in the emerging economies has slowed markedly. for switzerland, we also expect a period of negative growth. the situation on the us real estate market has not yet stabilised. futures on the case - shiller index indicate a further drop in prices of around 15 % until 2010. thereafter, the contracts suggest that prices will stabilise. falling prices can also be observed in some european countries, in particular in the english and the irish real estate markets. the past few weeks have seen some calming of global financial markets, but we are still a long way away from normalisation. with the worldwide deterioration in the economy, credit risks at banks will rise considerably. attention was drawn to this in june 2008, in our last report on financial stability. bank provisions for credit risks are currently at a historically low level, and they will need to be substantially increased. this will have a negative impact on their profitability. in the case of the big banks, the situation also involves considerable risks for trading portfolios. the worldwide economic downturn comes at a time when the international financial system is already in bad shape. in particular the big banks that have been hit especially hard by the crisis could be forced to curtail, or further curtail, their lending. this, in turn, could have additional negative effects on the real economy. in order to put a halt to this negative spiral, we consider it important that the economy be supported with monetary and fiscal measures. the interest rate reductions carried

out by the swiss national bank ( snb ) should be seen as part of these measures.... but the resilience of the big banks has been increased given this situation, the fact that it has been possible to increase the resilience of the swiss big banks is crucial. credit suisse boosted its capital through private investors by a total of chf 10 billion. it thereby strengthened its equity position substantially and increased its capacity for absorbing additional shocks. the losses of chf 3 billion announced by the bank for the fourth quarter show how important it was to reinforce the capital base. at ubs, the government package provided significant relief to the balance sheet from the burden of illiquid positions particularly affected by the crisis. with this package, the snb made it possible for ubs to transfer illiquid positions to a special purpose vehicle. the ubs provided this special purpose vehicle with equity amounting to usd 6 billion. the confederation compensated ubs for the capital requirement arising for this purpose by subscribing to mandatory convertible notes ( mcn ). since the announcement of the package, the ubs liquidity situation has stabilised. the numerous international measures aimed at stabilising the financial system have also had a positive effect on the position of the swiss big banks. nevertheless, further losses cannot be ruled out in view of the difficult market conditions. the situation remains serious, and the snb will continue monitoring it closely together with the swiss federal banking commission ( sfbc ) and the federal department of finance. lessons from the crisis and reforms in switzerland i would now like to speak about the lessons learned from the crisis. the continuing financial crisis is almost unprecedented, in terms of both extent and duration. it is also unprecedented in terms of the measures taken by the authorities and the central banks with the aim of stabilising the situation and minimising the impact on the real economy. this also applies to switzerland. at the presentation of the last report on financial stability, we expressed our conviction that the financial system needs to be made more resilient to possible shocks. this is all the more valid if we consider the hundreds of billions of taxpayers ’ money that had to be spent worldwide on stabilising the financial system over the past few months. the focus is on the need for improvement in the “ shock absorbers ” : capital and liquidity. the crisis has shown that the current regulation in these areas is no longer sufficient in the case of the big banks.