collapses and sharply increased premia for credit default swaps, such as those observed at some banks this year, would thus be reduced. in addition to a strengthening of resilience, it is also essential that the big banks further improve their resolvability. this requires both sufficient holdings of bail - in instruments and the formulation of credible emergency and resolution plans. emergency plans are aimed at ensuring that, in the event of imminent insolvency, functions that are important for switzerland can be maintained. this requires effective cooperation with foreign authorities in a crisis, for which, in turn, the global resolution plans are an important prerequisite. as regards emergency plans, both swiss big banks have introduced significant measures by setting up swiss subsidiaries which combine systemically important functions in one entity. the key point here is that the swiss units must be sufficiently independent from the rest of the bank, both operationally and financially. both big banks have to implement their emergency plans by end - 2019 at the latest. finma is responsible for the definitive assessment on whether the plans allow systemically important functions to be maintained in practice. domestically focused banks i would now like to turn to the domestically focused banks. for these banks, the mortgage and real estate markets still represent the greatest source of risk. growth on these markets has remained fairly constant over the last six months, and at a relatively low level. at the same time, imbalances on the mortgage and real estate markets have fallen slightly overall, owing to developments in fundamentals. despite this most recent development, the risks that have been building in the swiss banking sector since the beginning of the low interest rate period in 2008 remain considerable. thus, imbalances on the mortgage and real estate markets are still approximately as high as they were in 2014, when the sectoral countercyclical capital buffer was set at 2 %. moreover, risk appetite at domestically focused banks is still high, as is reflected in the interest rate and affordability risk exposures in their mortgage business. stress tests carried out by the swiss national bank suggest that these risks are currently sustainable, thanks to good capitalisation overall. against the backdrop of persistently low interest rates, this is welcome. in the future, too, a decisive factor for financial system stability will be the banks ’ ability to maintain risk exposures at a sustainable level. the current low interest rate environment creates strong incentives to increase interest rate or affordability risk exposures in lending business. for instance, there is a

standards include point - in - time regulations that target a simple leverage ratio and risk - based ratios. they also include forward - looking standards for both types of ratios that reflect estimates of potential capital needs across a range of plausible, but severe macroeconomic and financial conditions. these forward - looking estimates that result from our comprehensive capital analysis and review ( ccar ) program are now an integral, and some would say leading, part of the post - crisis capital regime. 5 the fact that firms must manage against multiple capital constraints has both intended and potentially unintended consequences. on the intentional side, this framework enhances robustness. risk assessment approaches and models are imperfect and a capital regime that relies on a range of assessment techniques can increase robustness and mitigate the inherent uncertainty around risk measurement. it also provides a check against potential regulatory arbitrage. a potential unintended consequence is pressure toward greater homogeneity of the largest banks. think about a simple example of a firm with a low - risk balance sheet where the leverage ratio currently is binding, but the risk - based capital ratio is not. this firm may have incentives to shift out of low - risk assets into higher - risk assets in order to optimize its balance sheet and the corresponding risk - adjusted return on equity. 6 a key point is that different firms face different marginal capital requirements for holding the same asset, depending on the other attributes of their balance sheet and business model. this type of response can impact both the size and the composition of a bank ’ s balance sheet. of course, the world is much more complicated than this simple example. optimizing firms likely consider a number of capital factors such as the current point - in - time ratios, current post - stress ratios, and the potential impact of both types of ratios in the future, as well as other balance sheet influences such as liquidity ratios and the recovery and resolution regime. recent academic work has begun to explore this topic and i think it is an important area where regulators and supervisors concerned with optimal regulatory design can learn from the theoretical literature. research suggests that in a world with multiple capital constraints, e. g., a leverage ratio and a risk - based capital, banks face incentives to do the same thing rather than 2 / 5 bis central bankers'speeches specializing in areas where they each have a natural competitive advantage. 7 this type of academic work provides a conceptual framework for understanding how optimizing behavior against multiple constraints might lead banks to pursue similar