. in activating the countercyclical capital buffer, the aim of the authorities is twofold : first, it should increase the resilience of the banking sector, thereby helping to protect against the consequences of a correction of excessive credit growth. second, it should help to lean against the build - up of such excesses. the federal council decides on the activation, deactivation and level of the countercyclical capital buffer, upon the proposal of the snb. the snb consults finma before submitting its bis central bankers ’ speeches proposal. the proposal will be based on an in - depth analysis and assessment of the situation on the swiss credit market, which will, in principle, be carried out once a quarter. 1 the signs of a build - up of imbalances on the swiss credit market relate to the residential mortgage segment. thus, if the buffer had to be activated, it would be aimed solely at this segment of the credit market. when assessing the necessity of activating the buffer, the snb will take into account the impact of other recently announced measures focusing on the mortgage and real estate markets. these measures include a further revision of the selfregulation rules and a tightening of risk weightings for mortgage loans. in addition, as part of its monetary policy mandate, the snb will closely monitor the impact of a possible activation of the countercyclical capital buffer, in order to assess the consequences for the economy as a whole. the current situation justifies the fact that this instrument, scheduled for implementation under basel iii, has been made available to the swiss authorities at an early date. numerous past crises have highlighted the costs associated with credit market excesses. even if the countercyclical capital buffer does not enable us to prevent the build - up of all imbalances in the swiss credit market, it should help to reduce these costs in the future, provided it is activated early enough for its preventive properties to take full effect. swiss national bank, “ implementing the countercyclical capital buffer in switzerland : concretising the swiss national bank ’ s role ”, fact sheet, june 2012 ; available at www. snb. ch, financial stability, publications. bis central bankers ’ speeches

first, by increasing their highest - quality capital – by which i mean loss - absorbing capital – and, second, by reducing their risk - weighted assets. cds spreads, for example, suggest that the market considers the solvency of both big banks to be above average compared to other international banks. this is partly explained by the fact that they are only moderately exposed to the most vulnerable peripheral euro area countries. despite the fact that this progress has been achieved, the snb considers that the big banks ’ loss - absorbing capital is still below the level needed to ensure sufficient resilience. this assessment is based on three factors : first, in the event of a further escalation of the euro bis central bankers ’ speeches area crisis, the loss potential for the big banks would be substantial compared to their lossabsorbing capital. as i have just pointed out, the big banks have only moderate direct exposure to the most vulnerable peripheral euro area countries, yet if the crisis in these countries were to deepen, a general deterioration in economic and financial conditions could be expected. in such a case, the potential losses for the banks would extend to a significant portion of their credit and trading positions. second, the snb ’ s assessment is based on a comparison with capitalisation levels at other international big banks. this comparison uses the definitions of the basel iii framework once fully implemented. these definitions yield the most accurate picture of a bank ’ s true resilience. the comparison based on these definitions reveals that both swiss big banks – and in particular credit suisse – are below the international average. given the importance of the big banks for the swiss economy and for financial stability, an above - average capitalisation level would be appropriate. third, the leverage of both big banks remains very high, despite a reduction in risk - weighted assets. at end - march 2012, the share of loss - absorbing capital in the net balance sheet total was 2. 7 % at ubs and only 1. 7 % at credit suisse. this capital would, for example, be insufficient to absorb losses such as those experienced by ubs in the recent financial crisis ( over 3 % of the net balance sheet total ). in addition, the question remains as to what extent the reduction of risk - weighted assets is matched by an effective reduction of economic risks, if the balance sheet total remains unchanged. for these reasons, the snb considers that it is essential for both big banks to further strengthen their resilience. it