##il the minimum reserve requirements of the national bank act, i. e. to hold sufficient reserves either in the form of banknotes or as sight deposits with the snb. deposits with commercial banks are distinct from central bank money. when speaking of these deposits in my remarks today, i will be referring to the sight deposits – also known as demand deposits – of their customers. customers also hold savings and time deposits with banks. these cannot be directly drawn on for transaction purposes, but they are cash equivalents and are therefore included in broader definitions of money. bank customers can use their sight deposits to make payments. unlike central bank money, the deposits with commercial banks are not legal tender, but they do represent a claim on central bank money. bank customers can withdraw sight deposits in the form of banknotes, i. e. central bank money, or instruct their bank to make a cashless payment. the latter leads to a reallocation of snb sight deposits – again, central bank money – from the customer ’ s to the payment recipient ’ s bank. from the public ’ s perspective, cash and deposits with commercial banks are virtually the same for payment purposes. however, deposits are subject not only to the risk of inflation, but also to credit risk. if their bank becomes insolvent, customers ’ claims to central bank money cannot be redeemed, or can be redeemed only up to the maximum amount covered by the deposit guarantee scheme. 5 it is mainly in times of crisis that the public becomes aware of this risk. were this not the case, there would be no runs on banks such as have been experienced time and again in the past. credit risk is, however, offset by a number of advantages. unlike banknotes, sight deposits with banks provide access to services in connection with payment transactions. in normal times, they also generate interest income. how are deposits at commercial banks created? how do deposits at commercial banks, i. e. customer deposits in swiss francs, come into existence? in our present - day financial system, the creation of deposits by banks is closely linked to the granting of loans. when a bank provides a loan, it credits the amount in question to the borrower in the form of a deposit to his or her account. this leads to an increase in credits on the assets side and in customer deposits on the liabilities side of the bank ’ s balance sheet. in switzerland, the national deposit guarantee scheme covers a maximum of chf

philipp hildebrand : snb overview of financial market activity introductory remarks by mr philipp hildebrand, member of the governing board of the swiss national bank, at the half - yearly media news conference, berne, 16 june 2005. * 1. * * developments in the financial markets financial market activity has been dominated in recent months by three key developments. firstly, the us dollar started to strengthen. secondly, long - term capital market yields declined further despite their already low levels. thirdly, changes in credit risk premiums in the different debtor categories have been more mixed than in the preceding months. despite the persistently high current account deficit in the us, the dollar has appreciated since the beginning of the year by roughly 12 % against both the euro and the swiss franc, and by approximately 7 % against the yen. the dollar benefited in particular from the willingness of foreign investors to back us financial investments. in 2004, net purchases of us securities were dominated by the strong demand from certain asian central banks. while such purchases have remained significant so far this year, private investors outside the us, too, have bought more us securities. this surge in demand is due in part to the fact that the markets continue to rate the growth prospects in the us better than those in europe and japan. the growing yield spread in favour of dollar investments as well as political uncertainty regarding the future development of the european union have also contributed to the relative attractiveness of the greenback. at present, there are few indications of any unusually pronounced imbalances between the real exchange rates of the currencies of the large economic blocs. looking at their development, it becomes apparent that they are all close to their long - term averages ( cf. graph 1 ). this suggests that the us current account deficit is not primarily a product of exchange rate distortions. it is mainly due to a comparatively high growth momentum and a low savings rate in the us. yields in the capital markets continued to fall. while this decline was weakest in the us, yields in continental europe hit historical lows. in switzerland, for instance, the yields on ten - year swiss confederation bonds reached an all - time low of less than 2 %. the extraordinarily low capital market yields reflect the market ’ s low inflation expectations. during recent months, certain concerns about economic growth have triggered a further decline in yields. both strong demand for long - term debt securities in industrialised countries ( driven by demographic factors ) and