. e. incentives, let me recall, by a way of contrast, a recent study by fahlenbrach and stulz ( 2011 ). these authors show that the losses of the banks whose managers ’ incentives were most closely aligned with the long - term interests of the firm they managed were at least as large, in the last crisis, as those at the financial institutions where governance was more obviously lacking. this suggests that wrong incentives were not the only factor in the behaviour and decisions that led to the crisis. knowledge and competence were also at play.... or a misalignment of incentives? incentives are an important component in risk and risk - taking. if there is an important lesson in economics and finance that has not been invalidated by the financial crisis, it is that incentives really do matter. the excessive risk - taking that was observed prior to the financial crisis is likely to have been – among other things – the result of the fact that key decisionmakers were not provided with the right incentives to carefully analyse and balance the possible consequences of the risks they agreed to take. let us take a bank as an example. the main relevant stakeholders are the depositors, the shareholders, the managers and the bondholders. what follows is a review of the situation of these stakeholders in relation to the desired risk profile of a typical bank. 3 depositors deposit insurance ensures that it is not the business of depositors to worry about the amount of risk that the bank, in which he or she has deposited his money, decides to take. a key lesson of the great depression was that deposit insurance is a socially justified feature of the banking system. this follows from the fact that banks are institutions vulnerable to bank runs, no matter how well they are managed. the principle of deposit insurance is widely accepted and i will not further question it. yet, the extent of deposit insurance and the form of its financing are important questions. recent history has refocused our attention on these matters, but these are not the issues i would like to deal with today. shareholders the incentives for shareholders differ from those of depositors. at first sight shareholders, as ultimate owners of the bank, can be counted on to discipline risktaking by the institution they own. after all, they stand to lose their entire stake if the risks taken lead to bankruptcy. however, this is only true to a limited extent. indeed, if we go beyond an initial, superficial consideration of the situation, we soon realise that

date. for 2013, we expect growth of 1. 0 – 1. 5 %. while the gradual revival in the global economy is having a supportive effect, the strength of the swiss franc will hold back export momentum and corporate investment expenditure. domestic demand is also likely to be restrained over the next few quarters. in view of the modest pace of growth, production capacity in switzerland will probably remain underutilised in 2013. the rate of unemployment is likely to rise further. given the fragility of global conditions, the downside risks also remain high for switzerland. monetary and financial conditions i will now turn to monetary and financial conditions, which are almost unchanged as compared to the situation in summer 2012. interest rates in the swiss franc money market continue to fluctuate around zero. since mid - june, the three - month libor has fallen from some 9 basis points to only 1 basis point. interest rates in the repo market are predominantly negative. in addition, the yield on ten - year confederation bonds attained a new historical low. this shows that the demand for safe investments remains high. over the past few months, as before, movements in the swiss franc mainly reflected the changing risk assessment of market participants. following the ecb ’ s announcement in early september that it would purchase unlimited quantities of bonds of crisis - hit euro area countries under certain conditions, the upward pressure on the swiss franc lessened. the m1, m2 and m3 monetary aggregates, which measure the amount of money held by households and companies, have increased substantially over the past few months. for this reason, some fear that we are heading for high rates of inflation. however, this is not the case. the inflation forecast for switzerland continues to be low. at present, the inflation rate is still in negative territory. inflationary pressure remains minimal because of the strong swiss franc and the relatively unfavourable global growth outlook. moreover, the underutilisation of production capacities in switzerland is restraining the inflation outlook. surveys on inflation expectations show that households and companies continue to assume that prices will remain stable, also in the medium term. given the current low interest environment worldwide, enforcement of the minimum exchange rate is necessary to ensure suitable monetary conditions in switzerland. global uncertainty will persist for the foreseeable future and drive demand for secure investments. bis central bankers ’ speeches as a result the exchange rate situation will remain fragile, despite the calmer environment that has come about as a result of the