over decades guarantees a stable currency. this constitutes a perfect numeraire for banking activities. second, the money issued by the snb, i. e. deposits that banks hold at the snb and banknotes, is the swiss legal tender. it represents the anchor of the swiss monetary system. if their customers wish, banks exchange the money in customers ’ deposits against banknotes issued by the snb. third, banks use the snb ’ s infrastructure, the swiss interbank clearing system, for their payment transactions. and fourth, the snb provides liquidity to the banks, which they hold in the form of deposit accounts or banknotes. in this way, the snb ensures that the payment system functions well and the demand for banknotes can be satisfied. by fulfilling its mandate, the snb thus provides fundamental services for the operations of banks and the financial sector. at the same time, the snb needs the financial sector in order to fulfil its mandate. the financial sector transmits the snb ’ s monetary policy actions to the swiss economy through its lending and borrowing decisions. based on short - term money market conditions set by the snb, banks adjust the cost of borrowing for households and firms. through their core business, banks thus contribute to monetary policy transmission. more generally, the financial sector transmits changes in the short - term policy interest rate to other assets of different maturities. the resulting change in overall yields on swiss assets influences their relative attractiveness. this also affects swiss franc exchange rates. both exchange rates and interest rates then determine monetary conditions in switzerland, and thus eventually output and inflation. although short - term interest rates are the main monetary policy instrument, the snb has, in recent years, been using exchange rate interventions as an additional tool. due to the safehaven status of the swiss franc, the snb has been active on the foreign exchange market. we are also willing to intervene, as required, as part of our current monetary policy. once again, banks have been at the heart of monetary policy transmission. they have acted as intermediaries of the snb ’ s foreign exchange interventions. 4 with depressed international demand and a strong swiss franc weighing on gdp, credit availability has been crucial for the domestic economy. low interest rates and ample liquidity provision by the snb have facilitated banks ’ intermediation activities. in short, the snb ’ s for further details, cf. lukas altermatt and roma

thomas jordan : monetary policy in the financial markets crisis summary of a speech by mr thomas jordan, member of the governing board of the swiss national bank, at an event for banks and pension funds, berne, 2 april 2008. the complete speech can be found in german on the swiss national banka€™s website ( www. snb. ch ). * * * the origin of the turbulence on the international financial markets which has persisted since august 2007 is mainly to be found in the us housing market. on the one hand, a long period of low usd interest rates had boosted the demand for residential real estate in the us. on the other hand, the structure of the us mortgage market with the associated rapid increase in mortgage debtors with poor credit ratings, and the subsequent securitisation of their mortgages, had proved to be problematic. between 2001 and 2006, residential real estate prices in the us doubled. at the end of 2006, there was a reversal in the price trend which triggered crises in both the real estate and mortgage markets. the substantial expansion in sub - prime and alt - a mortgages, and a deterioration in the credit ratings of debtors within these segments, led to a rise in the level of overdue payments and defaults. as a result, even securities that gave the appearance of being gilt - edged, but were backed by us sub - prime mortgages, lost considerable ground. since the banks themselves have massive investments in this market, they were obliged to make writedowns which, in some cases, were hefty. there is still uncertainty about the volume of additional bank writedowns that will be needed, so that the situation on the international money markets remains tense. in this crisis, central banks have reacted fast and flexibly in order to secure the supply of liquidity to banks and counter distortions on the money market. by means of various measures, the swiss national bank was able to stabilise the three - month libor within the target range, thereby keeping fluctuations in the relative restrictiveness of monetary policy low by comparison with other countries. however, it is not possible to solve the fundamental problems in the banking sector through the flexible deployment of an expanded range of monetary policy instruments ; neither can they be resolved by means of coordinated actions on the part of central banks alone. the banks themselves must make a substantial contribution to solving the problems which triggered the current crisis. in this respect, the most urgent matters are transparency with regard