jean - pierre danthine : the strong franc and the future of switzerland ’ s financial market infrastructure – two current challenges for the swiss national bank speech by mr jean - pierre danthine, member of the governing board of the swiss national bank, at a money market event, geneva, 3 november 2011. * * * the speaker would like to thank marlene amstad, anna faber, peter kuster, angelo ranaldo, andy sturm, dominik salierno and andreas wehrli for their valuable support in drafting this speech and preparing this presentation. introduction in today ’ s global economy, central banks face no shortage of challenges. of the many issues we confront, i will discuss two that are currently of particular relevance to the swiss national bank ( snb ). the strength of the swiss franc is on everyone ’ s mind. this summer it became a predicament of unprecedented dimensions and it continues to put tremendous pressure on the swiss economy. i will address this topic in the second part of my speech. by contrast, the challenge i will discuss first – the future of switzerland ’ s financial market infrastructure ( fmi ) – is not making headlines at present. essentially, the term fmi encompasses the exchanges, central counterparties, settlement systems, central securities depositories and other service providers which support the financial system. this infrastructure is central to the functioning of financial markets. it is crucial for the implementation of monetary policy and participants ’ access to central bank liquidity. as long as the fmi functions smoothly, it rarely attracts public attention. but, from a long run perspective, its performance is highly significant. internationally, many changes are taking place in the fmi arena and it is vital that our fmi – often referred to as the “ plumbing of our financial markets ” – continues to serve switzerland ’ s best interests in the future. my goal this evening is to raise awareness of the fmi ’ s importance and of the need to develop a strategy to ensure that it remains an asset for us in the future. part i : financial market infrastructure overall, the key elements of the swiss fmi function well. in the recent crisis, the resilience of our infrastructure has been remarkable. but, increased competition, international regulatory changes, growing trade volumes and, on occasion, heightened volatility imply that it will have to evolve in order to remain effective. i will hence highlight three aspects of our fmi tonight : its relevance, its strengths and the

understand the economic and financial impact of climate - related events. for example, on friday, the federal reserve bank of san francisco will host a conference on the economics of climate change. we can also continue to follow closely and learn from the approaches taken by other central banks, including the use of scenario analysis, stress testing and supervisory expectations to encourage institutions to factor climate risk into their risk management practices. finally, we can seek to strengthen the data and modeling capabilities we need to assess climate - related risks as part of our forward - looking, data - driven supervision. given the far - reaching impact of climate risk on the structure of the economy and the financial sector, i am confident that risk managers will respond appropriately and firms will continue to build resilience to all risks. garp, for example, is exploring this and has recently surveyed its members to better understand professional needs for “ sustainability, climate risk, and esg integration. ” 4 i am interested to hear from all of you about how your institutions are developing tools and practices to integrate climate risk into your risk management frameworks. innovation and culture it is no surprise to this audience that technological innovation, big data, and advanced analytics are transforming financial services. we can debate where we are on the maturity curve and what innovations are most likely to be transformative, but the direction of travel seems clear. i expect the afternoon session on “ technology, big data, and the practice of risk management ” will address core issues such as new approaches for model risk management in a world of widespread artificial intelligence ; the inherent challenge of “ explainability ” and potential bias in algorithms ; the strategic risks from new entrants ; and the impact on human capital strategies. 2 / 4 bis central bankers'speeches i want to highlight a complementary, but different issue and focus on how firms manage these changes. more broadly, what type of corporate culture is needed to support a successful digital transformation? over the past five years, the new york fed has emphasized the importance of a healthy culture to reduce misconduct risk. in addition, i think there is likely a link between a firm ’ s culture and its ability to adapt to a changing environment, whether it is technological innovation, demographic change, new business models, or climate change. firms need a culture that allows change and is resilient to these trends. in discussions of the impact of technology on financial services, for example, one extreme view is that new fintech entrants — either smaller start - ups or big