news conference berne, 13 december 2018 andrea m. maechler introductory remarks by andrea m. maechler i will begin with a review of developments on the financial markets and look at the status of the swiss franc. after that i will say a few words about the upcoming transition from libor to saron as the new reference interest rate in switzerland and inform you about progress being made on this front. situation on the financial markets so let me start with developments on the financial markets. in the second half of the year, sentiment on the financial markets darkened considerably at times, despite the fact that the economic situation in many countries remained sound. nonetheless, the economic data did weaken slightly in some regions. this caused investors to focus on a number of risks – most notably, ongoing concerns about protectionist tendencies, but also the currency crises unfolding in several emerging economies and italy ’ s budget dispute with the eu. as a result, volatility on the financial markets has increased significantly since mid - year ( cf. chart 1 ). this is particularly true of the equity markets, where prices fluctuated substantially at certain points. thanks to strong economic data and solid corporate earnings growth, us stock exchanges performed better than their counterparts in europe and the emerging markets ( cf. chart 2 ). despite suffering sizeable losses in october, the s & p 500 recently closed only moderately lower than it had at the end of june down 3 %. in europe, the stoxx 600 lost around 9 % over the same period. various factors contributed to the weak performance of european stocks. economic momentum has weakened of late and corporate earnings growth remained below expectations in the third quarter overall. moreover, currency turmoil in turkey and the budget dispute between italy and the eu weighed on europe ’ s stock exchanges. in switzerland, the smi has managed to gain around 1 % since mid - year. this page 1 / 5 berne, 13 december 2018 andrea m. maechler news conference above - average showing was predominantly due to a strong performance in july, which in turn was mainly driven by positive corporate news in the pharmaceutical sector. on the interest rate markets the picture initially remained mixed due to uneven growth momentum in the major economic regions since mid - 2018 ( cf. chart 3 ). in the us, the federal reserve confirmed that it intended to maintain its policy of gradual interest rate rises. against this backdrop, yields in the us continued to rise and the yield on 10 - year us treasuries

markets. they have produced robust profits and their capital position is very strong. among other things, this has been shown by a stress test applied by the fme [ financial supervisory authority ] and the central bank ’ s assessment of possible loan losses. these studies indicate firmly that the commercial banks ’ capital position is strong enough to withstand a significant economic crisis entailing several large shocks in tandem. their financial foundations are therefore strong. an important part of the exceptionally high bank profitability in 2005 and the first months of 2006 stems from trading gains, but even if these items are excluded, their operating profit would still be very healthy. dynamic operations by icelandic banks and the upgrading of their credit ratings and those of the republic of iceland have ensured easy access for them to international capital markets in recent years. this access has been used liberally and the banks have become more dependent on market financing. the commercial banks ’ funding in international bond markets has changed recently. it was first noticed in the pricing of credit default swaps in the autumn of 2005. subsequently, yields rose on icelandic bank bonds in the secondary market. these new conditions prompted extensive discussion by analysts with international banks and others about the position of the icelandic banks. attention focused in particular on the banks ’ business model, i. e. their high degree of leverage. it was pointed out that deposits account for a smaller share of the banks ’ funding that is customary among comparable banks in other countries. thus icelandic banks are more dependent on access to credit than is the norm. also, the banks ’ enormous expansion has been noted and some observers wondered if it has not been unduly rapid. whether or not the banks ’ positions and strategies deserve to be called into question is immaterial. the banks must take this dialogue seriously, by providing much more transparent information, correcting obvious misrepresentations and responding earnestly to criticism that may be justified. this is precisely what they have been doing in various ways and the results are already beginning to appear. macroeconomic imbalances, rapid banking sector growth and recent negative press prompted foreign investors to raise iceland ’ s risk profile. higher required yields in the secondary market for bank bonds and for credit default swaps indicate that the banks ’ financing costs have risen, at least for the time being. while there is nothing unusual about such a development, what is surprising is how much wider spreads have been required relative to the terms offered to banks with comparable credit ratings. required yields have now fallen again in the