categories and currencies. for a considerable period, the snb has held not just the traditional instruments – government bonds of countries with high credit ratings – but also bonds issued by private sector borrowers and shares. holdings of shares currently make up some 10 % of foreign currency investments. in order to diversify its investments further, in 2010, the snb included additional currencies such as the australian and singapore dollars as well as the swedish krona and danish krone in its investment universe. since the first quarter of 2012, the snb has also been investing in the korean won. additional investment opportunities in the advanced and emerging economies are continually being evaluated, both for bonds and for shares, although this is subject to an adequate level of liquidity in the markets in question. bis central bankers ’ speeches the idea of a sovereign wealth fund may appear attractive at first glance. however, in the current situation, it does little to assist switzerland or swiss monetary policy. the sovereign wealth funds in norway and the oil states cannot serve as models for the management of the snb ’ s currency reserves. all of them invest state income surplus derived from commodity exports. a swiss sovereign wealth fund funded from snb foreign exchange, by contrast, would be financed through money creation. from our point of view, the three following points, in particular, speak against a sovereign wealth fund. first, the creation of such a fund would not help to enforce the minimum exchange rate. the only decisive factor is the snb ’ s willingness to buy foreign currency in unlimited quantities against swiss francs. second, all investments abroad are subject to an exchange rate risk, whether they be government bonds, shares, real estate, commodities or investments in infrastructure, and irrespective of whether they appear on the snb balance sheet or on that of a separate sovereign wealth fund. consequently, outsourcing the foreign currency investments would not reduce switzerland ’ s exchange rate risk. third, outsourcing the foreign exchange to a sovereign wealth fund would call into question the independence of monetary policy and the snb, as well as the freedom of action for monetary policy. the size and composition of the snb ’ s balance sheet are a reflection of monetary policy. the snb must also be in a position to dispose of the assets it has purchased and determine the composition of its balance sheet as required. only in this way can it conduct an independent and target - oriented monetary policy. bis central bankers ’ speeches

. the first question is whether monetary policy – as an instrument for ensuring price stability – can be improved by including information on banking system stability? the second question works the other way round : can monetary policy influence the stability of the banking industry? and – if the answer to this second question is yes – the third ( normative ) question is whether monetary policy should be used to increase stability in the banking industry. while the answers to the first two questions are in the affirmative, the response to the third is negative. apart from monetary policy, the snb has other ways of contributing to system stability. the law clearly specifies that the instrument of monetary policy is directed at ensuring price stability. in other words, using monetary policy to promote the stability of the banking system while accepting the possibility that the objective of price stability might not be fulfilled, would be inadmissible. what is more, any gain in the stability of the banking system at the cost of price stability would be temporary, at best. experience has shown that, in the long term, the absence of inflation is a necessary pre - condition for stable banking systems. finally, the paper points out that the snb is already including system stability considerations in its monetary policy decision - making process, and is examining the possibility of utilising synergies between system stability and monetary policy more extensively. naturally, there are many more challenges with respect to the relationships between system stability and monetary policy. one of these challenges is liquidity management at commercial banks. it is apparent that liquidity standards that are desirable in terms of the public interest may be more exacting than those pursued by banks in their own private interests. like other central banks, the snb is currently looking more closely at the examination of existing liquidity standards. in this area, it is working with the sfbc and engaging with the central banks and supervisory authorities of other important international financial centres in information - exchange and opinion - building activities.