conditional on resolute fiscal policy adjustments, guaranteed collectively by euro area member states. in addition to highlighting the main trade - offs between public debt sustainability and monetary policy, the great merit of professor gita gopinath ’ s presentation is to use a formal model to support her rigorous analysis. in particular, she shows how the degree of commitment to low inflation may change the level of sustainable public debt. this analysis is most welcome, not only because public debts are very high, but also because in several parts of the world inflation appears stubbornly low in spite of extremely aggressive monetary policies. the second session examines changes in financial intermediation. hyun shin will focus today on the surge of bond - financing in the global economy over the last few years and the pros and cons associated with a broader shift from bank to market financing. admittedly, our objective as regulators remains relatively simple : it should be primarily to ensure that financial institutions, infrastructures and markets properly do their job of smoothly and efficiently channelling savings into productive investments. yet our task is difficult as finance constantly evolves as a result of technological advances or as an answer to regulatory changes. this should prompt us to be both resolute and cautious in dealing with many questions such as whether there is an optimal mix of bank and market financing. the financial crisis has indeed revealed at least three major failures of our financial systems, be they bank or market oriented : excess leverage, excess complexity and excess opacity. corrective actions have been implemented in these three areas. first, over the past few years, basel iii and various national or regional initiatives have led to a sizeable recapitalization of the banking system and especially sifis [ systemically important financial institutions ]. in the euro area, the comprehensive assessment of the balance sheets of 130 major banks shows how much progress has been made. second, major reforms have been undertaken in order to facilitate the orderly resolution of large and complex financial institutions, thus providing better incentives ex ante to these large financial conglomerates. such progress can be seen both in europe, where the banking union is a major step forward, as well as abroad. last, the scope of regulation has been extended to products and markets that remained too opaque in spite of their systemic relevance, such as some major classes of otc derivatives. that said, much work still lies ahead to stimulate new intermediation mechanisms in order to diversify the funding of the economy when a single channel, such as

have fallen again somewhat at both banks following an increase in the first quarter. second, credit suisse and ubs continued to deliver solid results in the second and third quarters thanks to their diversified income structures. while provisions for credit risks have increased compared to pre - crisis levels, they are significantly lower than those of their international peers. in addition, trading business and wealth management at both banks benefited from the rapid recovery in the financial markets. against this background, the capital situation at credit suisse and ubs has improved slightly since the first quarter. looking ahead, the two globally active swiss banks remain well placed to face the challenges posed by the difficult environment. an increase in provisions is likely in the coming quarters as a result of the expected deterioration in credit quality. under the baseline scenario, however, the snb estimates that the financial impact of the coronavirus pandemic on credit suisse and ubs will remain limited. furthermore, the snb ’ s scenario analysis shows that, thanks to their capital buffers, both banks could also cope with significantly worse developments in the economic environment than are assumed in the baseline scenario. at the same time, this analysis shows, however, that the estimated loss potential under stress scenarios at credit suisse and ubs continues to be substantial. moreover, uncertainty about the future course of the pandemic and thus about the financial impact on the two globally active banks remains high. both factors underline that the capital requirements under the current tbtf regulations are necessary to ensure adequate resilience at these two banks. domestically focused banks i shall now turn to the domestically focused banks. here too, there has been little change in the situation since the financial stability report was published in june. these banks ’ financial figures and risk indicators are still showing scarcely any effects of the coronavirus pandemic. although their profitability continued to decline in the first half of 2020, this development was driven by a further narrowing of the interest rate margin. there has been hardly any increase in value adjustments and write - downs. moreover, domestically focused banks are not reporting any significant rise in impaired loans at present. despite the page 2 / 4 zurich, 17 december 2020 fritz zurbrugg news conference economic downturn, mortgage lending volume and residential property prices have also continued to increase over the last six months. however, this does not mean that domestically focused banks will remain unaffected by the economic consequences of the pandemic. experience shows that there is typically a lag before the impacts