those systems. the host country choices will also inevitably be affected by how home countries are carrying out their regulatory and supervisory roles. this consideration includes, of course, not just regulations that are nominally applicable, but the manner in which those regulations are enforced. branching presents a particularly instructive example of the tension between assuring financial stability and permitting foreign banking operations that may carry economic benefits. because branches are not separately chartered and capitalized, a bank can relatively easily enter a foreign market by opening a branch, through which it can make loans – often initially to companies from its home country – using funds from the home bank. particularly where ( as in the united states ) foreign branches are forbidden by local law from accepting retail deposits, it might seem that there are minimal risks to the host country if the parent bank ( and thus the local branch ) fails. however, u. s. experience with foreign branches in the decade prior to the crisis shows the very real risks that can arise when a branch is used to raise funds in the host country ( in the united states, in dollars ) through short - term wholesale borrowing, and then directs those funds out of the host country for loans or asset purchases by other parts of the bank. as noted earlier, when short - term funding dried up, many foreign branches were left seriously short of liquidity and had to turn to the discount window. a shared feature of the u. s. and european union regulatory systems for foreign banks is that branching is permitted without requiring separate capitalization. many other jurisdictions have similar policies. thus opportunities for foreign bank entry and market access are provided. in the united states, larger branches do have to meet some liquidity requirements, though they are less restrictive than the standards applicable to domestic banks and intermediate holding companies. this requirement is an important example of a prudential measure that balances financial stability and the benefits of international banking. the degree to which we or, i presume, other jurisdictions will remain comfortable with this balance will depend on two factors. the first factor is the degree to which local branches are used by foreign banks as significant sources of unstable funding or for other risky purposes. while this has been a significant issue in the united states, it is less clear that other jurisdictions face similar risks. the second is the confidence host jurisdiction regulators have that the parent banks are subject to effective regulatory and supervisory oversight. developments since the crisis the profound shift in political and policy environments as a result of the financial crisis has led to considerable

slump in 2001 / 2002 put the earning power of the financial industry to the test. the swiss financial sector proved it could tackle these challenges. it was able to consolidate its position as a significant international financial centre, and thus remains an important pillar of switzerland ’ s economy. stiff global competition, meanwhile, is still forcing the financial sector to increase its efficiency and lower costs. the days when banks and insurance companies were reliable job machines are gone and will probably not return in the foreseeable future. the challenges i mentioned - from securing the social security institutions to standing our ground in a global environment - will be major issues for the swiss economy, politics and the public in the coming years, and they will put switzerland ’ s adaptability to the test. allow me now to comment briefly on a few of these challenges. 4. current challenges as in most industrialised countries, demographics create a need for action in switzerland, too. the population is steadily aging and grows only slowly. it is thanks to immigration that it is rising at all. we will therefore face a massive increase in social security expenditure in the decades ahead. at the same time, economic growth in switzerland is weak. this constellation threatens to destabilise public finances. there are solutions, yet none of them come for free. the first two solutions, i. e. cutting back social benefits and / or increasing social contributions, are not very popular. in the first instance, the people are opposed to such measures. as to the second solution, it does not make economic sense to further increase the already heavy tax burden. this leaves a third alternative - that is to boost income through stronger economic growth. a majority of people favour this solution, yet there is no consensus as to how it might be realised. some support stimulating demand, especially with a view toward monetary policy. others put the emphasis on supporting the market forces by deregulation and liberalisation. however, these same people will often shy away from drastic measures as soon as their own interests are concerned. the national bank can support economic growth with its monetary policy as long as the goal of price stability is not jeopardised. this is the case when economic growth reaches capacity limits. however, monetary policy cannot increase the growth potential. to achieve this, measures are needed that provide more room for manoeuvre and foster initiative and readiness for innovation on the part of individuals and corporations. in recent years, switzerland has seen a number of reforms that head in the right direction