thomas jordan : challenges for the snb in extraordinary times introductory remarks by mr thomas jordan, member of the governing board of the swiss national bank, at the half - yearly media news conference, berne, 20 june 2008. * * * around the world, the effects of the financial crisis on the implementation of monetary policy and the composition of central banks ’ balance sheets are becoming more and more apparent. on the one hand, conventional monetary policy has all but exhausted its options, and unconventional measures are being increasingly used. on the other hand, some central banks are having to manage the illiquid assets which they took over in an effort to stabilise the banking system. both of these situations also apply to the swiss national bank. therefore, after giving a brief assessment of the developments in the international financial markets, i will turn my attention to the unconventional monetary policy measures being taken by the snb. i will then move on to discuss the snb stabfund. to conclude, i will look at the risks facing the snb that are associated with these activities. situation in the international financial markets although the first few weeks of the year saw stock markets around the globe experiencing their lowest levels in many years, the surprisingly positive results from the us banking sector in mid - march prompted a turnaround in market sentiment. stock markets have since been recording strong price gains. other financial market segments also saw a significant recovery. as a result, the downward spiral, which was triggered by the collapse of lehman brothers last september and which, for a short while, even threatened to bring the global financial system crashing down, has come to halt. after having climbed to unsustainable highs in recent years, the prices of many investments fell to extremely low levels during the turmoil this past winter. the rapid recovery in the financial markets since march must also be partly regarded as a correction of previous excesses. furthermore, the extremely expansionary monetary policy being pursued worldwide is likely to have also contributed to calming the situation. however, the recovery in the financial markets should not conceal the fact that uncertainty is still high. how sustainable the shift in market sentiment really is remains to be seen. the risk of suffering a setback remains correspondingly high. the snb ’ s unconventional monetary policy measures at our quarterly assessment in march, we were confronted by the need to once again significantly expand our monetary policy. since the repo rates were already practically at zero, we had to resort to unconventional monetary policy measures. we decided

should preserve that. less discretion by banks in the determination of risk - weighted assets. recent events, including the european stress tests and the sovereign debt crisis, have highlighted significant differences across banks and across jurisdictions in the calculation of risk weights and capital requirements for certain assets. this raises the question as to whether such outcomes are consistent with what was intended by the designers of the basel framework. in coming months work will be initiated by both the basel committee and eba to monitor the implementation of the new regulatory framework and to ensure that risk - weighted assets are appropriately and consistently calculated for exposures in both the banking and the trading book. this will likely result in more harmonization, at least among european banks, of irb models for determining pds and lgds. significant differences across banks in riskweighted assets must arise as a result of true differences in risk and not from the underestimation of certain risks by some banks. bis central bankers ’ speeches 6. challenges while it is possible to make some predictions about the changes in the belgian banking sector in the coming years, several open questions remain, linked in part to the challenges associated with implementation of the regulatory reforms. one issue that we are all now acutely aware of as a result of the crisis is the fact that sovereign debt can no longer be considered to be a risk - free asset. it now becomes crucial for regulators to ensure that the credit risk of sovereign debt exposures is adequately recognized by banks. a reflection needs to be undertaken concerning the role of sovereign debt in regulation. questions that will need to be addressed include the allowance of a zero risk weight for certain sovereign exposures ( standardized approach allows zero risk weight for aaa and aa - rated sovereigns ; irb approach has no floor on sovereign pds ), the reliance of liquidity requirements on sovereign debt holdings, and exemptions of sovereign debt from large exposure rules. how these issues are resolved will obviously have an impact on the future composition of many banks ’ balance sheets. e. g. we see now that the liquidity cover ratio ( lcr ) as it is designed, discourages interbank lending. other open questions relate to potential unintended consequences of the regulatory framework. to what extent will the tougher requirements on regulated institutions cause risks and activities to flow into the shadow banking sector and what will be the implications for banks and for systemic risk? work is currently ongoing at the international level, under the leadership of the fsb, to strengthen the oversight and