an “ impossible dream ”. while i accept that there are conceptual and practical difficulties in fostering the stability of the financial system, i do not share this pessimism. we have only to consider the substantial cost of the recent financial crisis to realise that we can and should do better! in my view, two main prerequisites have to be fulfilled in tandem in order to sustainably achieve a higher level of financial stability. the first is to continuously strive to improve our knowledge about the sources of financial instability. clearly, the complex, continuously evolving financial system will never allow us to prevent all crises for all times. but, in general, the more information we have on the structure and dynamics of the system, the more accurately we can design its regulation, and the less uncertainty there will be about the “ optimal ” mix of regulatory instruments. the second prerequisite for improving financial stability is to recognise that financial stability is a question of will, or more precisely, of political will. in other words, even perfect information on the sources of financial instability might prove insufficient if the collective will needed to translate this information into practical measures is not present. conversely, even with imperfect knowledge, financial stability is attainable if we are willing to take precautionary measures commensurate to the extent of our ignorance. for instance, a regularly updated q & a section covering relevant topics around snb and swiss monetary policy. bis central bankers ’ speeches my optimism that financial stability is achievable rests partly on the fact that, in the case of switzerland, identifying the main sources of potential financial instabilities is rather straightforward. a first source is the “ too big to fail ” ( tbtf ) problem – that the swiss banking sector has several banks with balance sheets that are large in relation to gdp. a second key source of risk resides in the substantial imbalances that have been building up in swiss real estate and mortgage markets and the high exposure of domestically focused banks to these markets. let me mention here that other possible system - wide sources of risk discussed on the global level, in particular those in the “ shadow banking ” sector, are considered less of an issue in switzerland. one reason is that shadow banking assets in switzerland carry low to moderate bank - like systemic risks. another reason lies in the fact that bond funds and other investment funds, which make up 60 % of shadow banking assets in switzerland, are supervised by finma. 8 switzerland has made considerable progress in addressing its

negative equity, scenarios whereby expenses exceed income for a prolonged period of time are conceivable. such extreme scenarios not only preclude any profit distribution to the confederation and the cantons, but can also raise even more fundamental issues about the ability of a central bank to pursue a monetary policy oriented towards price stability. to summarise, large - scale central bank balance sheet expansions are associated with increasing risks. at the current juncture, the longer - term risks associated with a massive, uncontrollable expansion of the snb balance sheet would have been out of proportion to the benefits of continuing to enforce the minimum exchange rate. this does not mean that the snb will refrain from expanding its balance sheet further, should it prove necessary. rather, it clarifies that this policy option should be used only when the benefits clearly outweigh the costs. fiction iii : the snb has unlimited power the drastic actions taken by central banks since the financial crisis – flooding financial markets with liquidity on an unprecedented scale, injecting billions to save banks from failing, or, in the case of switzerland, intervening heavily in the foreign exchange markets – have led to the widespread perception that central banks have unlimited power. on the one hand, this perception is based on the fact that central banks are entrusted with the note - issuing privilege, i. e. they can “ print money ”. in view of the current difficult debates about austerity and deleveraging, the tendency to overrate the power associated with this privilege is probably natural. yet this view overestimates its actual power, for printing money bis central bankers ’ speeches can only resolve short - term liquidity issues. in the long term, it creates no value and merely generates nominal price increases. on the other hand, the perception that central banks are all - powerful is also based on the fiction that their independence renders them immune to democratic controls. it is a fact that today, most central banks are granted significant independence. this holds also for the snb, which, by law, is functionally, institutionally and financially independent, as well as with regard to personnel issues, from the federal council, the federal assembly and any other body. 4 there are compelling reasons for this delegation of monetary policy power to an independent central bank : it is a fact both in theory and practice that an independent central bank better fulfils its mandate, namely, ensuring price stability and thereby contributing to sustained economic developments