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

reducing both the likelihood of crisis at a systemically important bank and the costs to the economy in the event of such a crisis. the package consists of four complementary measures : ( 1 ) significantly more capital, and capital of better quality, ( 2 ) larger liquidity buffers, ( 3 ) rules imposing sufficient diversification to reduce counterparty risk, and ( 4 ) organisational measures. let me briefly outline some key elements of this package. the new capital adequacy regulations for systemically important banks apply to the riskweighted capital ratio and the leverage ratio. furthermore, they are designed to be progressive. put simply, the bigger the bank, and the greater its systemic importance for the domestic financial system, the higher the requirement. for institutions similar in size to ubs and cs at the time the tbtf package was initially defined, the total capital requirement adds up to 19 % of risk - weighted assets ( rwa ), of which 10 % must be held in common equity and 9 % can be held in convertible capital ( cocos ), and the leverage ratio requirement amounts to about 4. 6 %. 3 the organisational measures require banks to show convincingly – on the basis of “ emergency plans ” – that they are organised in such a way as to be able to maintain systemically important functions in the event of a crisis, thus reducing the need for a public bail - out. if they are not able to do so, the regulator, finma, may impose organisational measures. in march 2012, these new rules came into law and ubs and cs must fully comply by the end of 2018. this transitional period was introduced to mitigate potential unintended side - effects. implementation is under way. specifically, with respect to increasing their risk - weighted capital ratios, both banks have already made substantial progress. if they continue according to the plans they have announced, they will be in a position to fulfil the new regulatory for more detail on the basel iii framework, see bank for international settlements ( 2011 ). for the underlying assumptions and principles, see commission of experts for limiting the economic risks posed by large companies ( 2010 ). bis central bankers ’ speeches requirements by the end of 2014. 4 at the same time, regulators are working on the establishment of resolution and recovery plans. when finalised, these plans should enable the regulators to secure the orderly resolution of a global bank in the event of a severe crisis and, in doing so, to make