philipp hildebrand : current state of the financial system in switzerland introductory remarks by mr philipp hildebrand, vice - chairman of the governing board of the swiss national bank, at the half - yearly media news conference, geneva, 19 june 2008. * * * the swiss national bank publishes its sixth annual report on financial stability today. my comments are based on this report. i will begin with a brief assessment of the current state of the financial system. then i will present the most important lessons which the swiss national bank has learned from the credit market turmoil. as you know, the situation in the swiss banking sector worsened significantly in 2007 as a result of the correction in the us real estate market. in the second half of the year, profits fell at the swiss big banks and there was a substantial deterioration in their capital base. the other swiss banks, by contrast, were hardly affected by the turmoil. most of them were able to benefit from the buoyant swiss economy and surpass the good results they had achieved the previous year. since the beginning of 2008, developments at the big banks have been mixed. on the one hand, in the first quarter of 2008, they suffered losses in the international credit markets due to further deterioration in the international credit markets. on the other hand, they strengthened their capital bases and partially reduced their risk positions. in the past few months, the overall market environment has calmed somewhat. nonetheless, it is too early to sound the all - clear. the ongoing price corrections on the us real estate market will probably continue to put a strain on the us economy. ultimately, this will spill over to countries outside the us, although according to our assessment the affects will be limited. consequently, although the snb expects a slowing in momentum in the coming quarters, it expects the decline in economic growth to be less pronounced than in the us. however, there is considerable uncertainty attached to the current forecast. this means that market participants, and in particular the banks, also need to take less favourable scenarios into account. a clear escalation of the crisis in the us real estate market would heavily depress economic growth in the us and this, in turn, would leave a more pronounced mark on switzerland. moreover, real estate prices have risen appreciably in recent years in the us, as in other countries. price corrections can already be observed here and there in the real estate markets of other countries. further developments of this kind cannot be ruled out. we do not

just means that no additional assets are being purchased, but those maturing will be replaced. so we can ’ t actually say that this programme is stopping. we ’ re stopping net purchases. this means that our balance sheet will not increase any further. we will keep it stable in the first instance because an expansionary, accommodative monetary policy is still needed to stimulate investments, including in germany, and to continue to support economic growth in order to achieve inflation rates within our very narrow corridor of below, but close to, 2 %. will you also continue to purchase corporate bonds? we will continue to purchase maturing corporate bonds and then reinvest again. even corporate bonds? yes. but with these steps it will take a relatively long time to return to normality. is it perhaps possible that you ’ ve already missed the turning point? the federal reserve is already much further ahead. interest rates can only be reduced to combat a possible recession if they have previously been raised. yes, but the united states is in a completely different stage of its economic cycle. its economy is much more mature, and its economic upturn started much earlier than ours and has been going on for much longer. the inflation rates you see in the united states are much more stable, 3 / 6 bis central bankers'speeches exactly where the federal reserve wants them. but here in the euro area, inflation has also been where you ’ d actually like it to be at for several months now. yes, but you need to look further ahead. you can ’ t just look at the current month or one or two or three months ahead. you need to look at how prices develop over a longer period looking forward. otherwise you would have to change the interest rates every month, and i don ’ t think that would do the economy any good. you ’ ll also see that the inflation rates are projected to fall again next year. this is because some effects, particularly those resulting from higher energy costs, drop out of the calculation after a year ‒ this is called the base effect. but then we will have to wait even longer for interest rates to increase here in the euro area. we have to see how the situation develops. do you think that interest rates will increase above 0. 0 % in 2019? it depends on the price inflation data we receive in the first and second quarters of 2019. personally, i hope and assume that we will see a change in 2019, but i won ’ t try to