financial stability could increase further. as we saw in 2015, even a lower momentum on the swiss mortgage and residential real estate markets can cause imbalances on these markets to increase. this can happen, for instance, when combined with comparatively weaker developments in fundamentals such as gdp growth. moreover, in a sustained period of low interest rates, real estate prices will remain subject to upward pressure. another rise in prices or decline in yields could occur particularly in the residential investment property segment. this would increase the risk of a substantial correction in the event of an interest rate rise, which would put pressure both on leveraged investors and on the banks who finance their investments. at the same time, in an environment of persistently low interest rates, the pressure on interest rate margins would continue. such pressure creates powerful incentives for banks to take on more risks. the focus here is on maturity transformation and affordability risk in mortgage lending. in the short term, this may allow banks to increase their profitability, but the flip side is that this also makes them more vulnerable to interest rate shocks and corrections on the mortgage and residential real estate markets. domestically focused banks would be particularly exposed to a major interest rate shock. as we explain in our financial stability report, in the event of a normalisation of interest rates, banks would initially benefit from the restoration of the liability margin. however, a major interest rate shock would cause net interest income to fall significantly at many banks, potentially resulting in losses. the greater a bank ’ s maturity transformation is, the higher these losses will be. even if the current low interest rate period were to continue and interest rates were only to rise very gradually, the possibility of a major interest rate shock should not be ruled out. experience has shown that interest rate corrections can sometimes be sudden and sharp. it should also be borne in mind that interest rates on the money and capital markets are currently more than 300 basis points lower than at the beginning of 2008. in other words, bis central bankers ’ speeches even if interest rates were to return to levels previously considered normal, this would still constitute a major correction. in view of the fact that risks to financial stability could increase further over the short to medium term, the capital surpluses of domestically focused banks are of particular significance. when defining their appetite for risk and their capital plans, the banks should continue to ensure that they are also able to absorb the losses associated with highly unfavourable but possible scenarios in the future. even under scenarios of

guy quaden : the monetary policy of the european central bank and the economic outlook in the euro area speech by mr guy quaden, governor of the national bank of belgium and member of the governing council of the european central bank, at a conference in ottawa, 30 november 2001. * * * for economists and financial markets, the euro has been reality since january 1st, 1999. the decisive steps were taken at that moment by irrevocably fixing parities between the different national currencies that continued to exist momentarily and the start of the single monetary policy conducted by the new european central bank. for the general public, however, in europe and elsewhere, the euro will only be real when it will at last be tangible in the form of notes and coins. in little over one month, on january 1st 2002, the euro banknotes and coins will become part of the every day life of more than 300 million european citizens in 12 countries. and, after an unprecedented logistical operation, at the end of february at the latest, 12 national currencies will have disappeared for good. at that moment, monetary union will have been achieved completely. * * * to my mind, the implementation of monetary union in europe can be explained by a series of long term structural factors. first of all european integration is to a large extent a political process, having its roots in the two world wars that have devastated our continent in the first half of the 20th century. the schuman declaration of may 1950, which provided the basis for the european coal and steel community, stated clearly that “ solidarity in production will make it plain that any war between france and germany becomes not merely unthinkable, but materially impossible ”. then came the deepening of economic and financial integration with the common market which has logically culminated into monetary union. finally, during the 1990s, a large consensus was reached regarding the objectives of a stability oriented macroeconomic policy which has contributed to a remarkable convergence towards low inflation and limited public deficits, without which monetary union would not have been possible. * * * in the new monetary constitution of europe, what we call the eurosystem plays an essential role. it consists of the european central bank as such, that is situated in frankfurt, and of the twelve national central banks of the countries that have introduced the euro. the eurosystem is not to be confounded with the structure of any other central bank in the world, be they even of a federal nature.