thomas jordan : international money market disruptions, central bank reactions and lessons learnt introductory remarks by mr thomas jordan, member of the governing board of the swiss national bank, at the end - of - year media news conference, zurich, 13 december 2007. * * * as early as the first half of 2007, turbulence could be observed now and then on international financial markets. however, each event was isolated and short - lived. in the second half of 2007, there was a fundamental change in the situation. the sub - prime mortgage crisis in the us had a substantial impact on international financial markets, the extent of which had never been anticipated. i will cover three areas in my following remarks. first, i will discuss the upheaval on the international money markets. then i will talk about the reaction of central banks, in particular that of the swiss national bank. finally, i will outline some of the lessons learnt from this crisis to date. serious disruptions on international money markets at the beginning of august, the us sub - prime mortgage crisis spread like a shock wave into the money markets of the most important currencies. in doing so, it hit the vital nerve of the international financial system. well functioning money markets are essential in ensuring that financial market participants can adjust their liquidity positions. ultimately, they are crucial for banks'solvency and long - term commercial viability. with attention focused on money markets, the spotlight also fell upon central banks who implement their monetary policy in money markets by influencing the level of interest, via the supply of liquidity. moreover, the central banks are the only market participants who are in a position to create the liquidity used in the interbank payment systems. the kind of upheaval observed in the international money markets over the past few months has never been witnessed in living history. rumours and reports of substantial sub - prime positions at banks led to a sudden loss of confidence in international financial institutions. moreover, these banks are, to some extent, uncertain about their own future liquidity situation. consequently, banks subsequently began hoarding liquidity and became extremely cautious when granting credit to each another. the market for unsecured interbank loans over longer terms collapsed and at times the market for foreign exchange swaps dried up. since then, banks have been unable to obtain unsecured funds for terms of more than a few days or weeks a€ “ or have been able to do so only by paying substantial interest premiums. there were three factors

thomas jordan : current challenges for the swiss national bank in the area of monetary policy summary of a speech by mr thomas jordan, member of the governing board of the swiss national bank, at the money market event of the swiss national bank, zurich, 27 march 2008. the complete speech can be found in german on the swiss national bank ’ s website ( www. snb. ch ). * * * with its forecast that gdp will grow by 1. 5 % - 2. 0 % and the average inflation rate will amount to 2 %, the national bank is cautiously optimistic for the swiss economy in 2008. however, since the summer of 2007, the international environment has taken a clear turn for the worse : financial markets are in a serious crisis, the major economies are weakening and inflation rates are rising worldwide. this means that the snb ’ s monetary policy is facing challenges on several fronts simultaneously. with regard to economic growth, the snb is called upon to assess the consequences of the international financial crisis for the swiss economy as precisely as possible and to analyse their implications for monetary policy correctly and at an early stage. on the inflation front, it must ensure that the measures taken in connection with the financial market crisis do not jeopardise the credibility of a monetary policy geared to long - term price stability or shake established inflation expectations. finally, the challenge in the money market is two - fold. first, the snb must try – despite volatile risk premiums and interest rate expectations – to keep the targeted three - month libor as close as possible to the desired goal. second, with its operations and its choice of instruments, it must contribute to a well - functioning money market. even though there have been several innovations in the area of monetary policy instruments, the snb ’ s options in this complex environment are limited, however. in particular, there is no magic bullet with which central banks could restore the lost confidence among market participants. in dealing with the financial market crisis, therefore, banks and other financial market participants must also try to help restore the proper functioning of markets by implementing measures to shore up confidence.