total assets. against this background, both big banks have already made major strides towards expanding their loss - absorbing capital base. to this end, credit suisse issued contingent convertible bonds ( cocos ), while ubs retained its earnings. these important first steps have already significantly strengthened the big banks ’ loss - absorbing capital base. they also show that the big banks should be in a good position to build up the necessary, additional capital buffer. situation of domestically focused banks allow me now to discuss the situation of banks with a domestic focus. the capitalisation of domestically focused banks was almost unchanged in comparison to 2009. the short but sharp recession in switzerland in 2009 did not have any noticeable impact last year either. write - downs and provisions were at a historical low. in a long - term comparison, profits remained at a high level overall. likewise, the capitalisation of domestically focused banks hardly changed in 2010 and remains good in relation to both risk - weighted assets and total assets. however, the fact that capitalisation is high overall does not take into account that the regulatory capital requirements do not fully capture certain risks. for example, the interest rate risk and credit risk associated with potentially adverse developments in the real estate and mortgage markets are not taken into account, or only partially accounted for. yet these risks are especially pronounced in the current environment. on the one hand, interest rate risk for all domestically focused banks continues to remain at a historically high level. since there is a maturity mismatch between assets and liabilities, a rise in interest rates would result in losses for the banks. the overall high level of interest rate risk is driven by raiffeisen and cantonal banks. on the other hand, credit risk at domestically focused banks continued to increase. this is because the mortgage lending volume, which is closely linked to developments in the real estate market, continued to grow. the situation in the swiss real estate market has deteriorated slightly since last year ’ s financial stability report was published. even though they varied widely, most real estate price indices suggest that prices also rose substantially in 2010. there is still no indication of a general overvaluation based on the current price level, yet several indicators suggest that overheating is already becoming apparent in the owner - occupied apartment and apartment bis central bankers ’ speeches building segments. there are also considerable regional differences, although there are signs that, already now, real estate prices in some regions are no longer justified by fundamentals. should real estate prices continue to rise at

reducing the probability of bank failures and systemic crises. note that i deliberately use the word “ reduce ”. eliminating all instability would be neither feasible nor desirable. the resolution measures aim at reducing the negative consequences in the event that failures or systemic crises occur – despite hopefully greater resilience in the future. in what follows, it is useful to bear in mind the extraordinary situation we face here in switzerland. in international comparison, our banking sector is very large relative to our economy. currently, total assets of the swiss banking sector exceed seven times gdp. furthermore, the swiss banking sector is highly concentrated. based on total assets, the two big banks, ubs and credit suisse, have a market share of more than two - thirds. these exceptional orders of magnitude clearly necessitate prudent decision - making when determining the appropriate regulatory framework for banks in switzerland. preventive measures let me first turn to the preventive measures. these measures should focus on strengthening the shock absorbers of the financial system and thereby making the system more resilient. in the context of the most significant banks, this essentially means that they have to hold substantially more and better quality capital and liquidity. strengthening capital requirements as we all know, the crisis has revealed fundamental weaknesses in existing capital requirements. other important reports include “ financial reform : a framework for financial stability ” by the group of 30, and “ the global financial crisis : a plan for regulatory reform ”, committee on capital markets regulation, may 2009. “ restoring confidence, creating resilience : an industry perspective on the future of international financial regulation and the search for stability ”, institute of international finance, july 2009. speech by e. gerald corrigan, managing director at goldman sachs, at the presidential symposium, university of rochester, 10 october 2009. to address these weaknesses, a considerable amount of work has already been done and is still underway in the fsb and, crucially, in a number of working groups of the basel committee on banking supervision ( bcbs ). 7 in line with, and in full support of these efforts, the swiss authorities are convinced that a more robust capital framework needs to be built around the following features : first, the amount and quality of capital need to be increased very substantially. in the medium term, this will be feasible without giving rise to drastic adjustments at banks that might be harmful to the overall economy. the key to this will be a sufficiently long time horizon and, crucially, more discipline in retaining earnings