report this morning. i would like to present the main points to you now. i will start with the domestically focused banks before moving on to the globally active banks and, in particular, the crisis at credit suisse. domestically focused banks for the domestically focused banks, the operating environment has changed markedly over the past year. interest rates have risen significantly and there are signs of a slowdown in the real estate market. overall, the domestically focused banks have benefited until now from the rise in interest rates. this rise has helped to restore their interest rate margins. the banks have been able to increase their profits and strengthen their capital buffers. at current interest rate levels, domestically focused banks ’ profitability is likely to continue to improve. an unexpected upward interest rate shock in the future, however, would likely have a negative impact on these banks. first, in this scenario their interest expenses would increase faster than their interest income. this is because interest rates on many outstanding loans are fixed for several years. by contrast, rates on deposits are likely to react faster to a further interest rate rise. second, higher interest rates could lead to credit losses in mortgage lending. this constitutes a significant risk for domestically focused banks because mortgages are often their main line of business. against this backdrop, the results of our stress tests are crucial : thanks to their capital buffers, most banks should be able to cope with such a scenario. page 4 / 8 zurich, 22 june 2023 thomas jordan, martin schlegel and andrea m. maechler news conference globally active banks – observations on the crisis at credit suisse as far as the globally active swiss banks are concerned, this year ’ s financial stability report focuses on the crisis at credit suisse and its acquisition by ubs. the snb supported this acquisition, in particular, through the provision of ample liquidity assistance. in addition to its existing liquidity facilities, the snb deployed two new instruments based on emergency law : ela + and the public liquidity backstop ( plb ). comprehensive lessons need to be drawn from the crisis at credit suisse. the goal must be to continue to strengthen banks ’ resilience in order to prevent, wherever possible, a loss of confidence such as that seen in the case of credit suisse. if a crisis does still occur, a broad range of effective options must be available. from the snb ’ s perspective, three observations are especially important here. first, compliance with capital requirements does

encourage faster mbs repayments than are shown here, producing monthly paydowns larger than the 20 billion cap and thus some reinvestments — an issue i will return to later. policymakers have indicated that they want the portfolio ’ s size to decline “ in the background, ” and that the federal funds rate will be the primary instrument of monetary policy. balance sheet normalization is expected to continue until the fomc judges that the federal reserve is holding no more securities than necessary to implement monetary policy efficiently and effectively. the fomc has not specified how large the balance sheet should be at that point, other than an expectation that the level of reserve balances will be appreciably below that seen in recent years, but larger than before the financial crisis. my colleague lorie logan spoke in may on the many technical drivers of this ultimate level, which include the mode of policy implementation that the fomc chooses in the longer run, possible increases in recent years in the financial system ’ s demand for reserves and federal reserve reverse repo liabilities owing to new financial regulations and other factors, and the long - term evolution of demand for paper currency. 10 let me spend a few minutes discussing the importance of gradualism and predictability. gradualism the case for gradualism in reducing the fed ’ s securities holdings rests on evidence, as well as potential risks, that an overly fast flow of securities into private hands could be disruptive to market functioning, as well as the fomc ’ s confidence that it can adjust its policy stance as needed through changes in the federal funds rate. in particular, there is evidence that the agency mbs market, due to the nature of its trading conventions, is prone to dislocation when market participants expect large transitions in central bank agency mbs flows. 11 such concerns can be self - fulfilling : if market participants are concerned that an abrupt shift in flow might be disruptive, they might, for example, withdraw from liquidity provision. an overly fast redemption flow of treasuries could also create challenges in the government ’ s management of public debt auctions and result in communication challenges. 12 rapid portfolio declines also could have unforeseen impacts on overnight money markets, for example by creating significant shifts in dealers ’ demand for overnight repo financing. we have seen such impacts in the past. this sort of volatility did not, and would not now, pose a major problem to markets or policy implementation, but it