thomas jordan : swiss banking centre – a great past and a successful future? speech by mr thomas jordan, chairman of the governing board of the swiss national bank, at the swiss international finance forum, berne, 20 may 2014. * * * the speaker would like to thank till ebner for his valuable support in preparing this speech. he is also indebted to rita kobel, marco huwiler, peter kuster and the snb language services for their assistance. introduction history has shown that important international banking centres can develop in small countries as well as large ones. switzerland is an excellent case in point. during the course of the 20th century, the banking centre in this country became one of the world leaders in wealth management. with the associated creation of value and employment, the banking industry was transformed into a cornerstone of the swiss economy. however, for some years now, the prominent international role of the swiss banking centre has been subject to increasing criticism. given this situation, switzerland and its banks are confronted with a fundamental question : can switzerland, as a relatively small country, continue to provide a home to a banking centre whose importance is global in nature? in my view, this is possible as long as the following three prerequisites are fulfilled : the services offered by the banks, their crisis resilience and their reputations must all be considerably above average. it is up to the banks themselves, first and foremost, to fulfil these prerequisites. at the same time, politicians and the authorities have the task of creating the business conditions which will support the banks in fulfilling these prerequisites. with the business conditions in mind, i will comment today on four factors which i regard as essential : first, relevant and effective regulations ; second, maintenance of switzerland ’ s economic and political stability ; third, protection of the privacy of honest tax - paying bank customers ; fourth, ensuring access to foreign markets. i would like to begin, however, by talking about the economic importance of the banking industry for switzerland, as well as the fundamental challenges faced by this industry at present. economic importance of the banking centre in switzerland the banking system is often described as the life blood of the economy. with good reason. general economic prosperity and the development of the banking industry are closely related. when intermediation between capital supply and demand works well, a significant contribution is made to the prosperity of a country. 1 it works the other way round, too. the banking centre

term to longer - term operations will take place that could lead to reduced participation in the main refinancing operations. should this reduction occur – which seems highly unlikely, but at this juncture it is difficult to quantify the precise extent – the ability of the central bank to control short - term rates, and thus to signal its monetary policy stance, might be affected. the ecb could adapt its liquidity management practices in order to guarantee a continued high demand for short - term refinancing. 5. 1. 3 collateral pledged to the central bank the third area in which the new regulation could interact with the central bank ’ s operational framework is the collateral pledged to the central bank. as you know, all refinancing by the eurosystem is provided only against the provision of adequate collateral, so as to protect it from losses should a counterparty default. at the same time, collateral should be available to a wide set of counterparties. 9 for this purpose, the criteria for assets to be eligible as eurosystem collateral are quite broad. government securities, corporate and bank bonds, as well as high - quality asset - backed securities and some other assets are accepted as collateral. in addition, risk management tools are applied to ensure protection of the eurosystem against credit risk. the wide range of eligible assets proved to be extremely valuable in recent years, when markets for certain types of security became very illiquid, but banks continued to refinance themselves via the eurosystem. as discussed before, the liquidity coverage ratio is supposed to induce banks to hold more liquid assets. one way for banks to boost their ratio is to keep their most liquid assets on their balance sheets, and to pledge the more illiquid ones as collateral in ecb liquidity - supply see european central bank, annual report 2009, p. 102. operations. this is possible as long as the definition of liquid assets is narrower than the criteria for eligibility in eurosystem operations. this implies that banks may try to circumvent the spirit, if not the letter, of the new regulation by shifting more of their risky assets to the eurosystem. the argument that central banks are in a better position to bear liquidity risks by their ability to create money should not be turned into a justification for regulatory arbitrage. this is especially true when considering that also credit risk could be shifted to central banks as a consequence of this ( mis ) behaviour. 5. 2