in addition to model - based rwa would likewise lead to greater transparency with regard to risks. greater transparency would help to make changes in model - based rwa easier to understand, and thereby increase the credibility of the model - based approach. domestically focused banks : resilience and lending policies i would now like to turn to our assessment of domestically focused commercial banks. at present, the risks for these banks are primarily linked to the situation and momentum on mortgage and real estate markets. in an environment of historically low interest rates, there has been a build - up of imbalances on these markets. on the one hand, the ratio of mortgage loans to gdp has increased to very high levels in a historical comparison. on the other, growth in real estate prices has been persistently stronger than what can be explained by fundamental factors. owing to these developments, measures were announced in june 2012 to reduce risks in the swiss mortgage market. these measures include a revision of the self - regulation rules for mortgage lending and stricter capital requirements for mortgage loans. despite the measures taken, however, imbalances continued to build up in 2012. against this background, the federal council decided in february 2013 to activate the countercyclical capital buffer, at the proposal of the snb. in the light of this risk situation, the fact that the capitalisation of domestically focused banks is significantly above the regulatory minimum requirements is a welcome development. indeed, compared to the previous year, these banks have even improved their regulatory capitalisation slightly. moreover, most domestically focused banks already meet finma ’ s capital buffer requirements, which go beyond basel iii. however, figures on regulatory capital may overestimate the true resilience of these banks. for one thing, the risks in the real estate market in particular are not or only partly taken into account in the regulatory capital requirements. for another, neither interest rate risk nor the low diversification of these banks – whose activities are centred on the domestic mortgage market – are fully reflected in the capital requirements. these aspects are currently of particular importance for three reasons. first, as already mentioned, mortgage and real estate markets have seen a further build - up of risks since june 2012. second, there has been further significant growth in mortgage lending at domestically focused banks. although growth momentum has declined year - on - year, the volume of mortgage claims at these banks has increased by around 5 %. third, banks ’ risk appetite in lending has remained persistently high. for instance,

, the higher the weight. the figure for risk - weighted assets ( rwa ) represents the sum of these risk - weighted positions. required capital, in turn, is defined as a percentage of rwa. there are two different approaches for setting risk weights. under the standardised approach, risk weights are prescribed for broad asset classes. under the model - based approach, by contrast, banks can use their own internal models to determine the risk weights for different assets. the credibility of rwa based on banks ’ internal models is increasingly being called into question by market participants, analysts and authorities worldwide. it is widely accepted that a bank ’ s risks can, in principle, be more accurately quantified using the model - based approach than using the standardised approach. yet banks ’ internal models are extremely complex and can vary widely between banks, owing to the use of different model choices and model parameters. this can result in different capital requirements for banks with a similar asset structure. this makes it difficult to accurately assess a bank ’ s resilience, and to compare one bank with another. bis central bankers ’ speeches to increase the usefulness and credibility of the model - based approach, in - depth analyses need to be carried out to determine whether and to what extent the model - based approach and the standardised approach lead to differences in rwa. the standardised approach does have shortcomings. yet, since it is independent of bank - specific modelling assumptions, it provides market participants with an additional point of reference for assessing both the level of and changes in model - based rwa. differences between the two approaches must be well explained and have a sound economic rationale. if the analysis does not reveal any substantial inexplicable differences, this will strengthen market confidence in the modelbased approach. otherwise, appropriate measures should be considered. this could, for instance, entail setting a floor for some model - based rwa, such as that recently introduced for banks in the us. another option would be to introduce a multiplier on model - based risk weights for specific positions, as already imposed by finma for some mortgage loans. efforts are underway at finma, supported by the snb, to analyse potential differences between the two approaches. in this context, the snb recommends that the big banks increase transparency with regard to their risks. this includes, among other things, publishing their internal measures of total risk. disclosing rwa according to the standardised approach