also needs to be given to the indirect effect of an interest rate increase, namely that if loans are granted without sufficient attention being paid to borrowers ’ financial situations, a rise in the interest rate will inevitably result in higher loan losses. as i have mentioned, the domestically focused banks are well capitalised by historical standards. but in view of the risks and uncertainty, they will also need to maintain a large capital buffer. the jump in domestic mortgage lending and in property prices in an environment of historically low interest rates prompted us in the first quarter of this year to conduct a survey among the major banks in the swiss mortgage industry. we must not forget the lessons learned from previous crises. the property bubble of the 1990s, with its dire consequences for the swiss banking sector, but also the most recent example – the sub - prime crisis – serve to remind us that adverse developments in the mortgage market can threaten the stability of the banking system, and are thus deserving of the swiss national bank ’ s ( snb ) fullest attention. the results of the survey give no cause to sound the all - clear. these may show that there was no relaxation of internal lending standards by the banks between 2005 and 2009, but for banks with a significant overall market share these standards lack conservatism. more than a few banks, for instance, are determining the affordability of a mortgage loan based on an interest rate which is at a historically low level. in addition, based on statements made by survey participants, in practice, deviations from internal lending standards occur frequently : banks with a market share of almost 25 % reported such “ exceptions to policy ” for more than 20 % of new mortgage loans granted in 2009. furthermore, the banks provided only incomplete data on their actual lending practices. this could be a sign that some banks are inadequately informed of the risks in their mortgage portfolios. the snb is treating this issue as a high priority, and will continue to monitor the mortgage market carefully. we will analyse the risks in greater detail – in close cooperation with finma and the banks themselves – and examine whether there is a need for action. in any case, caution should be exercised in lending. when assessing affordability, it must be taken into account that interest rates are, by historical standards, exceptionally low. it is essential that loan - to - value ratios be set conservatively, especially for regions and property types that have seen prices rise sharply in recent years. outlook we expect the global economy

to continue recovering this year. this recovery, however, is fragile, for it has until now been based largely on the support measures deployed by governments and central banks. uncertainty is still at an above - average level. downside risks have gone up again in recent months due to the financing difficulties faced by some european countries. urgently needed cost - cutting measures and rising risk premia could jeopardise the recovery and trigger another lengthy period of higher credit default rates, and even renewed turbulence on the financial markets. a development of this kind would present the swiss banking sector with a serious challenge : besides an economic slowdown and a slump in the financial markets, a further destabilising influence could be the spread of problems throughout the global banking system. thus indirect risks pose a serious threat to swiss banks, even if direct risks – measured by the direct claims on those countries particularly affected until now – are moderate. in this climate, it seems inappropriate to us that banks increase their appetite for risk. reforming the regulatory framework / “ too big to fail ” a year ago, we emphasised the urgency of alleviating the “ too big to fail ” issue. where do we stand today? allow me to state clearly right now : the “ too big to fail ” issue will not resolve itself. last year, the big banks significantly reduced their balance sheets – a move explicitly welcomed by the snb. the “ too big to be rescued ” issue has thus also receded somewhat. however, there has been hardly any alleviation of the “ too big to fail ” issue. big bank liabilities, which at the end of 2008 were still almost six times swiss gdp, were reduced by the end of 2009 to just over four times gdp. nevertheless, the big banks ’ share of markets relevant to the swiss economy – and hence their systemic importance – remains just as high as before : the big banks grant a third of domestic loans and hold a third of domestic deposits. in other words, switzerland is still vulnerable, and the need for action remains great. this opinion is shared by the commission of experts appointed by the federal council on “ limiting the economic risks posed by large companies ”, of which i am vice chairman. it is the commission ’ s assessment that in their current form and size, the big banks are clearly systemically important. the commission of experts published its interim report at the end of april. the “ too big to fail ” issue is to be addressed through a package of key measures