that loans extended by banks are typically tied up for longer than customer deposits. banks can increase interest rate risk exposure by, for instance, extending repricing maturities. 7 this chart illustrates how the banks ’ appetite for interest rate risk has increased since the beginning of the low interest rate period ( slide 9 ). it shows the net present value loss which the domestically focused banks would incur on average if the interest rate level were to rise by 200 basis points. this loss is considered in relation to the banks ’ equity capital. the chart underlines that this loss potential has been very high for several years. it also makes clear that these banks have taken on additional interest rate risk since the introduction of negative interest. in the case of mortgages, the affordability assessment typically also includes assumptions on maintenance costs. cf. snb ( 2016 ) : financial stability report 2016, www. snb. ch / en / mmr / reference / stabrep _ 2016 / source / stabrep _ 2016. en. pdf. in a supplementary survey on the mortgage market which the snb has been conducting since 2011, the 25 largest banks with a cumulative share of the domestic mortgage market of over 80 % are asked to provide information about loan - to - value and loan - to - income ratios for new mortgages in the following segments : owner - occupied residential real estate, and residential investment property held by commercial borrowers and private individuals. for the purposes of the survey, new lending comprises both refinancing of an existing mortgage from another lender and newly granted loans for the purchase or construction of real estate. equally, actual interest rate risk increases if banks stop – or scale back – hedging activities for such risk to reduce costs. page 7 / 10 the snb regularly conducts simulations to gauge the significance of this interest rate risk exposure for financial stability. as set out in this year ’ s financial stability report, these simulations suggest that the swiss banking system is well positioned to absorb a gradual normalisation of interest rates under current conditions. 8 indeed, the banks even stand to benefit from such a scenario, as a moderate interest rate rise would relieve pressure on interest rate margins. this is due to the fact that the first effect of a moderate rise in interest rates would likely be a normalisation of liability margins. if, on the other hand, we assume a scenario in which interest rates rise very sharply, this would have a significant adverse impact on the banks. this outcome is at

##dence ” or “ interconnectedness ” between financial institutions and between markets. this “ interconnectedness ” reflects a variety of direct and indirect linkages in the financial system and it involves institutions and markets that are regulated as well as those that are not subject to sufficient, or any, regulatory oversight. this second category includes not only hedge funds but also off - balance sheet financial entities, such as structured investment vehicles, as well as the securitisation market, and the market for credit default swaps ( cds ). in this respect, two points are relevant for the design of the regulatory policies. first, the size of some of the non - bank financial institutions and the overall magnitude of the activities of the “ non - bank, non regulated sector ” have become significant and can pose systemic risks. second, and as a consequence of the first, the “ interconnectedness ” of all institutions and markets implies that it is the “ collective ” behaviour of all that determines endogenously systemic risk and its potential impact on the real economy. a third lesson is that the increasing financial integration in europe and globally has important implications for the cross - border distribution and propagation of systemic risk and the appropriate institutional setting for the prevention and management of a crisis. more specifically, the regulatory framework and the supervisory arrangements in europe must be broadly compatible with those in other large economic areas, notably the united states and vice versa. and within the eu, the growing presence and significance of cross - border financial institutions ( the largest 43 cross - border banking groups in the eu accounted for 76 % of total eu bank assets at the end of 2007 1 requires the strengthening of the paneuropean character of supervision. a fourth and final lesson that i want to stress is that effective crisis prevention and management call for close cooperation and efficient information exchange between the supervisory authorities in various jurisdictions as well as between the central banks, whose tasks include the safeguarding of financial system stability, and the supervisors of individual institutions. the effectiveness of such cooperation, which is relevant both within countries, and across borders, crucially hinges on the exchange of relevant information in a timely manner. what broad conclusions can we draw from these lessons, and more generally from the recent experience, for supervisory policy? although the severity of the ensuing problems has differed across institutions and countries, overall the crisis revealed that micro - prudential supervision in many cases proved inadequate to identify, in a timely manner, the nature and size of accumulating risks and to impose