inflicting damage on third parties through our own failure. a second phenomenon, which is germane to switzerland, is the fact that - in comparison with other countries - the two big banks, cs and ubs, garner a very significant share of all banking transactions. without doubt, this results in a high concentration of risk, but also yields some significant advantages. two such advantages stand out : - the collective efforts of our banking sector are governed by a natural leadership structure which facilitates and accelerates development processes, - and, secondly, the two big players act in some measure as know - how brokers, swiftly incorporating the year 2000 experiences gained abroad into the process of solving the problem in this country. more generally speaking, our long tradition of practical cooperation between competitors and of close ties between regulators and banks is a distinct plus in the preparatory work. jointly managed institutions like the swiss exchange, our central securities depository, or the swiss interbank clearing system are well - known examples of this spirit of cooperation. i am confident that the large - scale interbank tests scheduled to begin in may will provide us with a positive picture of the state of preparations. assuring liquidity from the viewpoint of a central banker, assuring adequate liquidity must be the prime concern. based on the nature of their business, banks are inherently vulnerable. withdrawals and redistribution of deposits can jeopardise the banks ’ capacity to pay. such effects, should they materialise at all, may take place as a millennium shadow before or during entering the next millennium. it is primarily the duty of individual banks to brace themselves for such events. they must undertake careful liquidity planning, comprising both a normal scenario as well as different stress scenarios. they must have a clear idea where, in what form, and to what extent they can cover their liquidity needs and make the necessary limits and collateral available. in this process, it is crucial that banks interfacing with large customers - enter into agreements with one another, thus creating a high degree of transparency. the goal is to limit the range of unexpected behavioural changes by creating transparency and reaching an understanding. looking at the issue from this vantage point also makes it clear that a strategy of avoiding transactions is completely contra - productive. even though it makes sense to avoid settlement dates of forward contracts falling immediately before and after the millennium transition, it is vital that transactions can be carried out and that markets remain liquid. it is at least conceivable that smaller banks or

have all seen a particularly large number of changes in the past few years : independence, transparency and accountability. 3. independence - mandate - transparency independence right into the 1980s, independent central banks were the exception - such as those of the us, germany and switzerland - rather than the rule. this has changed on a broad front in the past ten years. the massive surge of inflation in the 1970s and 1980s and the reluctance of some finance ministries ( and their associated central banks ) to combat it made economists and the public aware that politicians may not have the appropriate incentives to bring or to keep inflation down. why are independent central banks more successful when it comes to bringing down inflation rates? the reason is that politicians and central bankers tend to have somewhat different objectives and largely different time horizons. technocrats at central banks mandated to ensure monetary stability can easily afford to take a long - term view, while politicians feel much more constrained by the pressure to produce short - term results. this seems relevant since an inflation - preventing or inflation - combating policy is usually associated with real costs in the short run, while the benefits appear only over time. a government might be seduced into conducting an inflationary policy in order to reap benefits in the short term, while the costs will only become evident years later. therefore, there is a strong probability ( but, of course, no guarantee ) that independent central banks will do a better job than governments with regard to the issue of inflation. this insight - and perhaps the relative success of most independent monetary authorities with the disinflation process in the 1970s - has paved the way for granting more independence to monetary authorities. essential preconditions for the independence of a central bank include a solidly based consensus concerning its mandate and a commitment to transparency and accountability. mandate most economists would agree that the core task is ensuring price stability. this consensus rests on the conviction that in the long term, when all the lag effects have come to an end, monetary policy only determines the price level, not, however, output or employment. thus the primary obligation of a central bank to maintain price stability does not imply that priority is given to price stability in preference to full employment. rather, it is in the economic nature of monetary policy instruments that they are suited for influencing price level trends, not, however, growth or employment trends. yet in the short term, ie within the monetary policy transmission process, monetary policy does have real effects. the problem can easily be illustrated if one