equity and fixed income assets. especially significant have been flows directed to peso - denominated government bonds. mexico has been attracting an increasing proportion of total capital inflows devoted to emerging - market local bonds. currently, in mexico, close to half of all peso - denominated public debt securities with fixed coupons are held by foreign investors. factors behind the portfolio inflows may include mexico ’ s macroeconomic stability, capital account openness, a freely floating exchange - rate regime, and high liquidity enjoyed by the mexican peso in fx markets. resulting favorable financial conditions have supported credit to firms and, in general, the recovery of bank lending to the private sector. as financing costs have fallen, so has the required return on capital projects, promoting investment. it is often said that the main risk associated with buoyant capital inflows is the possibility of a “ sudden stop. ” indeed, this scenario is likely and it has occurred, on innumerable occasions, for reasons not exclusively related to the recipient country, including several times in mexico. a sudden stop of capital inflows has frequently implied the need for traumatic adjustments in domestic spending, employment and growth, as has been illustrated by the current collapse of foreign investment in the peripheral countries of the eurozone. the most serious risk associated with capital inflows is not the ever - present possibility of a reversal, but rather ignoring the likelihood of the event. to be sure, financial crises typically occur because people assume that easy credit will last forever. as a result, over - borrowing and asset price bubbles emerge, which eventually end in implosions that impair the functioning of the economy, as witnessed in the last global financial meltdown. hence, possible capital reversal calls for prudence on the part of economic agents in mexico. as in any economy, the need to detect financial bubbles poses a challenge for policymakers. although in accomplishing this task, authorities do not generally have knowledge that is superior to that of market participants, they should have stronger incentives for warning against possible excessive risk - taking. given the inherent difficulty of measuring systemic risk and the probability of unintended consequences from direct interventions in credit markets, moral suasion could, in principle, be an advisable policy tool. 5 the base - case scenario for mexico ’ s economic outlook, as posited by most analysts, assumes the continuation of favorable external conditions. this assumption does not seem unreasonable at this point in light

philipp hildebrand : thoughts on asset management in switzerland summary of a speech by mr philipp hildebrand, member of the governing board of the swiss national bank, at the swiss funds association, berne, 28 march 2006. the complete speech can be found in german on the swiss national banka€™s website ( www. snb. ch ) * * * summary asset management is an important source of earnings for banks in switzerland. the financial industry, in turn, is the largest sector in the swiss economy and of crucial importance for economic development. assuming that the world economy stays on its expansionary course, global assets will continue to grow strongly. moreover, the rapid increase in the volume of accessible information means that clients are often better informed. it is also giving rise to a broader product range and generating tougher competition and cost pressure amongst providers. these trends will bring about far - reaching changes in asset management over the medium term. money market, equity and bond investments managed on a moderately active basis often fail to pay the consistently above - average yield that would warrant their costs. they will probably lose ground to passively managed, inexpensive products. substantially better performance will be essential for the traditional products that remain. alternative investments, too, will benefit from the structural changes. however, this area will continue to be affected by the limited supply of exceptional portfolio management expertise. asset management in switzerland compares fairly well on an international scale in terms of performance and operational efficiency. however, the industry must lose no time in tackling the restructuring that is needed, particularly in the traditional segments. in the area of alternative products, switzerland has admittedly been successful in the fund of funds business. it is to be hoped that its financial industry will build on this success and become even more of a centre of excellence for alternative investments too.