to service their loans, increasing the possibility and number of defaults, and ultimately leading to a vicious feedback loop of falling property prices and impaired balance sheets throughout the banking sector. at the same time, switzerland currently serves as perfect example for the afore - mentioned argument that the interest rate is unlikely to suffice as instrument to ensure financial stability ( slide 5 ). notably, it is clear that the current exchange rate situation invalidates the interest rate as an available instrument to dampen the persistently strong growth in credit volumes. at present, the interest rates required for monetary policy objectives differ considerably from those required for financial stability policy objectives. this perfectly demonstrates the need for specific instruments to be able to address both policy objectives – financial and price stability – simultaneously. against this background, the federal council announced a package of measures in june 2012 addressing these risks in the mortgage and real estate markets. in addition to the ccb, this package consists of a structural revision of capital requirements for residential mortgage lending as well as a revision of the banking industry ’ s self - regulation guidelines. the first of these measures consists of a permanent increase in the risk - weighting11 for the loan tranche exceeding the 80 % loan - to - value ratio. the second taxonomy as proposed in de nicolo et al ( 2012 ). for an overview on macroprudential instruments and international experiences, cf. cgfs ( 2010 ). over the past three years, annual real growth amounts to, on average, 4. 4 % ( houses ) and 5. 5 % ( apartments ). annual real mortgage growth over the past three years amounts to, on average, 4. 8 %. the risk - weighting is increased from 75 % to 100 %. bis central bankers ’ speeches measure requires a 100 % risk - weighting for new mortgage loans which do not meet tighter minimum requirements stipulated in the banks ’ revised self - regulation guidelines. 12 the ccb, for its part, is a pre - emptive measure that allows authorities to temporarily raise capital requirements in the banking system as imbalances in the credit market develop. when activated, banks will be required to gradually build up an additional capital buffer of up to 2. 5 % of total domestic risk - weighted assets during the upswing in the credit cycle. the ccb requirement is a supplement to other capital requirements. once risks have materialised, or if the intensity of risk is subsiding, the capital buffer generated from the ccb is

policy. the snb had lowered interest rates sharply during the financial crisis, but by the spring of 2009, the traditional interest rate instrument was practically exhausted. consequently – with an incipient threat of deflation – the snb adopted unconventional measures to loosen the monetary conditions further. by carrying out long - term repo transactions and foreign exchange swaps, acquiring swiss franc bonds issued by private sector borrowers and purchasing foreign currency, the banking system was supplied with large amounts of liquidity. in the past few months, foreign exchange purchases, in particular, have been an effective instrument for averting deflationary risks. while the liquidity created by purchasing foreign exchange and swiss franc bonds is of a permanent nature, liquidity resulting from repos and currency swaps is temporary. it flows back automatically when transactions are not renewed. this has occurred to a large extent in the meantime. the considerable expansion in the snb ’ s balance sheet is therefore primarily attributable to the increase in foreign exchange reserves. these have more than quadrupled to just over chf 230 billion as a result of the interventions since the beginning of the financial crisis. from today, the snb will also be publishing information on current foreign exchange reserves on its website ( www. snb. ch ) at the beginning of each month. the high level of foreign exchange reserves will inevitably increase currency risk and mean that debtors are concentrated in a few major countries. these risks ultimately represent the burden the snb has assumed in order to protect the swiss economy from the threat of deflation, in line with its mandate. balance sheet risks have risen overall. the snb is now reaping the benefits of having continuously increased its allocation to provisions in previous years. this gave it the room for manoeuvre it needed for measures in times of crisis. the higher allocation to provisions decided on recently has further strengthened the snb ’ s capital base. the snb has sufficient equity capital to withstand even large losses. in the long term, a large part of the liquidity that has been created is excess liquidity. as my colleague, jean - pierre danthine, will explain, the snb has the necessary instruments at its disposal to withdraw this liquidity. inflation forecast chart i would now like to comment on the new, conditional inflation forecast in more detail. the ( dashed ) red curve on the chart represents the new, conditional inflation forecast. it covers the period from the second quarter of