the snb. however, the snb grants a generous exemption threshold, which reduces the effective interest rate burden for the banking sector. these exemption thresholds give banks the freedom to decide whether – and to what extent – they should pass on negative interest to their customers. from a financial stability perspective, it is not negative interest per se which poses a challenge, but rather the low level of interest rates more generally. it is conceivable that low interest rates will lead investors to take greater risks. this can result in imbalances developing on the real estate and mortgage markets. in switzerland, a variety of measures have been implemented since 2012 – the countercyclical capital buffer for instance – with the aim of reducing the associated financial stability repercussions. since then, the pace of growth on the real estate and mortgage markets has slackened somewhat, although mortgages continue to grow faster than gdp. the snb therefore monitors the situation on these two markets continuously. an environment of low interest rates also brings fundamental monetary policy challenges. one of these arises from the fact that it is possible to hold money in the form of cash. i have shown that the snb ’ s negative interest rate is an effective monetary policy tool. but how far can nominal interest rates actually fall? if the interest rate level declines further, at some point cash will become more attractive than sight deposits bearing negative interest. as the snb has no intention of doing away with cash, this results in an effective lower bound for interest rates, which limits the scope for monetary policy action. this lower bound is below zero, because holding cash is expensive and risky. thus, people are prepared to pay a certain amount to hold their money electronically. in switzerland, the cost associated with the current page 7 / 16 negative interest rate is clearly lower than the cost of holding cash. consequently, demand for cash has not yet risen substantially. so the effective lower bound for interest rates has not yet been reached, but we know that it exists. another monetary policy challenge is the fact that the expansionary effects of low interest rates on consumption and investment can fade over time. as i have noted, following the introduction of negative interest, some banks increased their lending rates in order to offset falling interest margins. the longer the low interest rate environment persists, the greater the risk that distortions in the banking system will arise, hampering the transmission of the negative interest rate via the credit channel. in addition, low interest rates on

jean - pierre roth : impact of the global crisis on switzerland introductory remarks by mr jean - pierre roth, chairman of the governing board of the swiss national bank, at the schweizerisch - deutscher wirtschaftsclub, frankfurt am main, 2 march 2009. the complete speech can be found in german on the swiss national bank ’ s website ( www. snb. ch ). * * * what started as a financial crisis has now become a global economic crisis. although the swiss economy was in a very sound state before the crisis set in, switzerland ’ s standing as a financial centre, its real economy and its public finances have all been strongly affected by the global turmoil. recovery will depend largely on the development of the us economy. despite having reached worldwide proportions by now, the crisis was not triggered by globalisation itself. rather, it is the result of a lack of discipline in the industrialised nations. monetary policy today must contribute to the stabilisation of the financial system and the real economy without losing sight of its principal task, which is to maintain price stability.