, governments and banks in many advanced economies are still in deleveraging mode, and this attempt to reduce the debt overhang is likely to weigh on short - term growth prospects. moreover, persistently high cf., e. g., adrian and shin ( 2009 ). cf., e. g., miller et al ( 2002 ). cf. tinbergen ( 1956 ). bis central bankers ’ speeches unemployment rates and tight financial conditions continue to dampen consumption spending and business investment in several euro area countries. against this background, the swiss economy is expected to continue its expansion in the quarters to come. available indicators hint at a fairly robust second term in 2013. for instance, monthly data show that exports are gaining momentum, driven by the strengthening of foreign demand. for 2013, we expect the swiss economy to grow between 1. 5 % and 2 %. despite this moderately optimistic outlook, we must be aware that downside risks remain substantial. let me name three : first, structural problems in europe persist, and could cause new market tensions. in particular, the european banking system remains vulnerable. second, a negative fiscal shock in the us in early 2014, caused, for instance, by renewed political deadlock over public budget negotiations, would probably be a drag on the global economy. third, adjustments of the monetary policy stance in one area ( e. g. the us ) may create undesired spillovers in other regions ( e. g. emerging markets or europe ). this could lead to increased volatility in financial markets. what does this economic outlook imply for the likely evolution of interest rates? in the analysis of potential future paths, we have to distinguish between policy rates and market rates. market rates, in general, respond faster to changes in the economic situation and outlook than policy rates. the low inflation environment, subdued economic outlook and downside risks that prevail all warrant the continuation of a very accommodative monetary policy with low interest rates. given the fragile state of the global economy, a premature increase in policy rates would carry the risk of choking off the recovery. in switzerland, specifically, the subdued inflation outlook ( chart 17 ), the highly valued currency and the fact that a recurrence of financial market tensions cannot be excluded warrant a continuation of the minimum exchange rate policy. in the current situation, the minimum exchange rate remains an essential instrument for preventing an undesirable tightening in monetary conditions should the upward pressure on the swiss

risk measurement that not long ago were possible only in theory are now becoming integral parts of daily operating practice. by applying these theories and techniques, institutions today are more effectively pricing and hedging risk, allocating capital, evaluating risk - adjusted returns and identifying the optimum mix of financial products or services. i believe these enhanced management practices have contributed importantly to the economic growth and market gains seen in recent years. as competition has intensified, we have seen a growing overlap in the activities and product lines provided by both banks and other financial service providers that has diminished the past distinction between banks and many nonbank firms. that trend has raised public policy questions regarding bank powers and the appropriate organizational structure through which banking organizations should gain new powers. proposals recently introduced in congress to address those issues would fundamentally redefine the relationship of banks to other financial services companies and in some instances their relationship to commercial firms as well. banks have not only expanded their products and activities, but have also expanded their geographic reach, both domestically and globally. within the united states, banks have expanded nationwide as barriers to interstate banking have been removed. this expansion should continue as banks exercise their new power to branch across state lines. a related domestic trend is the rapid consolidation within and between banking organizations. although some consolidation is undoubtedly related to the removal of barriers to interstate branching, it is also spurred by improved technology, strong competition in banking markets, and the drive by banks to reduce costs. internationally, the globalization of banking has accelerated, driven by improved technology and the opening of economies in eastern europe, asia, latin america, and other regions. in particular, u. s. and other international financial institutions are forging a growing presence in lending, trading, and underwriting in these emerging markets. these efforts have created closer links among the world ’ s financial markets and have improved the efficiency and availability of capital. however, market integration has also increased the potential for systemic problems to transcend national borders, as the volume of international financial transactions has grown. last year, for example, an estimated $ 1. 5 trillion of foreign exchange contracts were settled daily in new york city alone. a default by a major u. s. or foreign participant in that market could disrupt financial markets worldwide. competitive pressures are intense to reduce the cost of financial services to the public. this is occurring against the need to improve the financial strength and competitiveness of the banking industry from the levels at the beginning of this decade. these factors have, in turn,