. the national bank defines price stability in the same way as the ecb. the question thus arises whether we, too, should as a principle aim at the upper level in the range of price stability. we see no reason to make any changes in our concept. switzerland is a small open economy and the proportion of imported goods in the national consumer price index amounts to 25 %. as a result of exchange rate fluctuations, the inflation rates are significantly more volatile than in the euro area. there is therefore no sense in aiming at an excessively narrow range of inflation. such temporary fluctuations in inflation do not pose a problem for the swiss economy and should not be countered by means of special monetary policy actions. furthermore, the euro area also has the problem that there is a large spread in inflation between the peripheral countries and the countries at the centre. in striving for an inflation rate of less than, but close to, 2 % in the medium term in the entire euro area, the ecb is trying to prevent inflation in the central countries from being pushed down towards zero, or even below zero, for any length of time. in switzerland, this problem does not exist as only inflation measured in switzerland is relevant for our monetary policy. additional agreement between the federal department of finance and the snb on the distribution of profits on the free assets at yesterday ’ s meeting the bank council of the national bank agreed to an additional agreement between the federal department of finance and the swiss national bank on the distribution of profits on the free assets ( income on reinvested proceeds from gold sales ). the profit distribution of the national bank will thus increase by sfr 300 million to a total of sfr 2. 8 billion ( for the financial year 2003 ) in spring 2004. in 2005 and 2006, it will be gradually raised up to sfr 3 billion. the national bank ’ s profit distribution has so far not taken account of this income on reinvested gold proceeds. on discussing this transaction, the bank authorities of the national bank expressed their concern that it was now even more obvious that the national bank ’ s profit transfer was reaching a level that cannot be maintained in the long term. the governing board shares the bank authorities ’ concern that a later return to the “ normal level ”, which will only amount to approximately sfr 1 billion, is likely to create considerable political difficulties. from today ’ s vantage point, it cannot be ruled out, moreover, that as a result of the additional distribution on the

##ugg news conference second, the average interest rate margin of domestically focused banks decreased in 2016, having stabilised at a low level in the previous year. this renewed reduction in the interest margin highlights the considerable pressure which these banks continue to face in their core business, in an environment of exceptionally low interest rates. at the same time, however, banks ’ net interest income and reported profits increased. this is mainly because the growth in mortgage volume more than offset the reduction in the interest rate margin. third, the resilience of domestically focused banks remains adequate. in terms of both riskweighted assets and leverage ratios, they are well capitalised by historical standards, and their capital surpluses currently exceed the regulatory minimum requirements. snb stress tests indicate that the surpluses at most of these banks are large enough to absorb losses under adverse scenarios. that is the snb ’ s evaluation of the current situation at domestically focused commercial banks ; but what about our assessment of the outlook? here, the predominant feature is again the margin pressure that i have just mentioned. the pressure on interest rate margins will remain strong as long as interest rates remain exceptionally low. thus, there will be strong incentives for banks to take on more risk. in the short term, an increase in affordability risk or interest rate risk may help to prevent a further decline in profitability. however, it would make banks more vulnerable to a large upward interest rate shock and to a correction on the mortgage and real estate markets. greater risk - taking in lending could also lead to a renewed increase in momentum on the mortgage and real estate markets. this applies particularly to residential investment property, where upward pressure on prices could remain strong. if interest rates rise, there is the risk of a substantial price correction. this could result in credit losses at the banks that provide funding for such investors. this highlights the importance of the capital surpluses currently held by the domestically focused banks. going forward, banks should set their risk appetite and their capital planning so as to ensure that they can absorb the losses that would arise under highly unfavourable but possible scenarios. even under such scenarios, the banks must be able to perform their economically important functions – especially that of providing credit to the economy. the snb will continue to monitor developments on the mortgage and real estate markets closely, paying particular attention to the residential investment property segment as well as to banks ’ risk - taking in mortgage lending. in parallel, it will continue to regularly reassess the need