##nb could sell some of its reserves in order to shorten its balance sheet. although we have not yet reached this point, such an eventuality should not be ruled out. 11 the snb must be able to deploy its balance sheet at all times, quickly and without restriction. these reserves therefore have to meet stringent security and liquidity requirements. consequently, as chart 3 shows, we invest a very large proportion of our reserves in government bonds denominated in the major currencies, such as the euro, the dollar, the yen, pound sterling and the canadian dollar. holding liquid investments that can be mobilised rapidly allows the snb to use its balance sheet at any time, should monetary policy require it. a second aspect that differentiates us from other investors is that we remain as neutral as possible vis - a - vis the market. in other words, we must be able to move large volumes without unduly influencing prices. this neutrality ensures that the snb is able to build up and scale back its investments quickly and efficiently, while avoiding conflicts of interest with its mandate. neutrality also guarantees that the snb ’ s investment policy remains independent of all political considerations. in this sense, neutrality is an essential condition for the optimal fulfilment of our mandate. finally, at the operational level, the snb differs from other investors in that it cannot protect itself against the greatest risk to these reserves – currency risk. any attempt on the part of the snb to hedge this risk would increase the demand for francs, which would run counter to its monetary policy objectives. the snb ’ s risk profile therefore differs significantly from that of other institutional investors. while the currency risk ( orange shading in chart 4 ) represents 78 % of the total risk exposure of our investments, in the case of a representative swiss pension fund, this proportion is only 16 %. due to its particular risk profile, the snb is exposed to significant fluctuations in its investment result from one quarter to the next. given these fluctuations, we exploit all available room for manoeuvre in order to diversify our investments. this allows us to optimise our risk / return profile and maintain the value of our reserves over the long term. to do this, we invest in equities and corporate bonds. equities are an attractive asset class for the snb. their high degree of liquidity ensures the necessary flexibility in monetary matters, while their higher return potential helps to improve the risk

philipp hildebrand : financial stability summary of a speech by mr philipp hildebrand, vice - chairman of the governing board of the swiss national bank, at the institut des hautes etudes commerciales de lausanne, lausanne, 16 september 2008. the complete speech can be found in french on the swiss national bank ’ s website ( www. snb. ch ). * * * during the period of financial market turbulence, central banks have gone far with their interventions to stabilize the financial system, taking into account the high costs that can be imposed by a banking crisis onto the real economy. central banks by themselves, however, cannot guarantee financial stability in the long term. in particular, we cannot exclude that their interventions create incentives for banks to be less cautious in the future. the first line of defence therefore consists of banks having sound risk management practices and holding appropriate levels of capital and liquidity. the financial stability forum has made a series of recommendations in this respect. given the size of the big swiss banks in relation to our national economy, we should be especially prudent. for this reason, the swiss national bank supports the project undertaken by the swiss federal banking commission ( sfbc ) to strengthen capital adequacy requirements and to revise the liquidity requirements for the big banks. as the sfbc has pointed out on several occasions, these measures have to be implemented gradually – to ensure that banks have sufficient time to adapt. these measures will contribute to the solidity and credibility of the swiss financial centre. this will strengthen its position as a global leader in wealth management.