in addition to model - based rwa would likewise lead to greater transparency with regard to risks. greater transparency would help to make changes in model - based rwa easier to understand, and thereby increase the credibility of the model - based approach. domestically focused banks : resilience and lending policies i would now like to turn to our assessment of domestically focused commercial banks. at present, the risks for these banks are primarily linked to the situation and momentum on mortgage and real estate markets. in an environment of historically low interest rates, there has been a build - up of imbalances on these markets. on the one hand, the ratio of mortgage loans to gdp has increased to very high levels in a historical comparison. on the other, growth in real estate prices has been persistently stronger than what can be explained by fundamental factors. owing to these developments, measures were announced in june 2012 to reduce risks in the swiss mortgage market. these measures include a revision of the self - regulation rules for mortgage lending and stricter capital requirements for mortgage loans. despite the measures taken, however, imbalances continued to build up in 2012. against this background, the federal council decided in february 2013 to activate the countercyclical capital buffer, at the proposal of the snb. in the light of this risk situation, the fact that the capitalisation of domestically focused banks is significantly above the regulatory minimum requirements is a welcome development. indeed, compared to the previous year, these banks have even improved their regulatory capitalisation slightly. moreover, most domestically focused banks already meet finma ’ s capital buffer requirements, which go beyond basel iii. however, figures on regulatory capital may overestimate the true resilience of these banks. for one thing, the risks in the real estate market in particular are not or only partly taken into account in the regulatory capital requirements. for another, neither interest rate risk nor the low diversification of these banks – whose activities are centred on the domestic mortgage market – are fully reflected in the capital requirements. these aspects are currently of particular importance for three reasons. first, as already mentioned, mortgage and real estate markets have seen a further build - up of risks since june 2012. second, there has been further significant growth in mortgage lending at domestically focused banks. although growth momentum has declined year - on - year, the volume of mortgage claims at these banks has increased by around 5 %. third, banks ’ risk appetite in lending has remained persistently high. for instance,

notable declines in exports to other neighboring countries. in addition, japan ’ s other export markets such as the united states maintain solid economic growth. on the foreign exchange market, the yen has appreciated against southeast asian currencies following their shift to a floating exchange rate system. however, the yen has, overall, remained in a stable range reflecting a gradual depreciation against the u. s. dollar. thus, japan ’ s export environment as a whole continues to be favorable, and the currency and financial instability in southeast asia has, so far, not affected the fundamental trend of japan ’ s exports in any significant way. in addition, southeast asian countries have been adopting various measures, some of which are internationally coordinated. on november 1, it was announced that the international monetary fund ( imf ) and other international organizations have agreed on a financial package for indonesia. in the foreign exchange markets, the monetary authorities of japan, singapore, and indonesia have confirmed that they will cooperate to stabilize the indonesian currency. the bank of japan strongly hopes that these and similar measures taken by other countries will soon restore monetary and financial stability in these countries and encourage a smooth economic adjustment. the bank will continue to observe developments carefully. with regard to business fixed investment, this is likely to continue to expand as a whole against the backdrop of sustained growth in corporate profits. firms ’ projections of earnings in fiscal 1997 indicate that smaller nonmanufacturing firms anticipate a decline in profits for the first time in four years, strongly affected by a decline in public investment and in personal consumption. in the manufacturing sector, however, both large and smaller firms expect a continued rise in earnings and profits partly supported by solid export performance. in addition, large nonmanufacturing firms project sustained growth in profits following the favorable results in the manufacturing sector. some of these profitable firms recently revised their earnings outlook downward because of the recent deceleration in domestic demand. however, on the whole, earnings and profits remain on an upward trend. against the backdrop of such developments in profits, overall investment plans in fiscal 1997 seem to be firm, especially in the manufacturing sector, although business fixed investment of smaller firms in the nonmanufacturing sector is expected to remain at a low level. in view of the aforementioned profit trend, the positive outlook for returns on investment, and the strong demand for information - related investment, it is fair to expect that business fixed investment will continue to increase. as i have discussed, the bank believes