deemed to be critical if their functioning is absolutely vital for the system - wide provision of liquidity. • the central infrastructures ( snb, sis, telekurs ), which are crucial for the critical business processes, must be able to resume critical business activities within two hours without losing any confirmed transactions. • critical system participants must be able to resume defined critical business activities within four hours. • the other system participants must be able to resume operations within 24 hours. the results of the analysis show that adequate preparations have been made both for central infrastructures and the major system participants. nevertheless, areas in which there is room for improvement were identified. for instance, existing precautionary measures should not only be tailored to cater for the failure of physical components ( such as buildings or hardware ), but particularly to events that interfere with staff availability. the final report of the working group will be completed in the second half of 2005. it will not be limited to issuing specific recommendations, but also to showing how they can be implemented. financial stability report 2005 ( 950 kb )

is relevant for regulation. the big banks are quite well placed by international standards in this regard. however, if the unweighted capital ratio is used as a benchmark ( in switzerland, it is not subject to any minimum requirements ), the capital levels of the big banks are more modest when viewed internationally. the reasons for this discrepancy are the comparatively low proportion of off - balance - sheet business at the swiss big banks on the one hand, and the low average weighting of trading and loan books on the other hand. thirdly, there is no indication – from our perspective – that the risks entered into in the banking industry have risen : market and interest rate risk have only increased slightly on an aggregate level, and credit risk even seems to have fallen. consequently, the banking sector is in good shape at the moment. as far as prospects for the near future are concerned, we believe that the macroeconomic environment and financial market conditions pose no major threat to the stability of the swiss banking system. the outlook for 2005 indicates that economic growth in most regions will only slow down at a moderate pace. in addition, the available indicators suggest that there is currently little risk of contagion effects causing a crisis in the swiss banking sector. nevertheless, there are still potential sources of risk. they pertain to credit risks in particular. firstly, an unexpectedly sharp economic downturn could have a serious impact on the quality of the loan portfolios and the stock market. secondly, should we witness a swift economic recovery, however, a sharp rise in the still very low interest rates could also result in a deterioration of the loan portfolio. this is because the growing interest burden would suddenly put considerable pressure on households and companies with mortgages to pay off. banks would also be directly affected by the steep interest rate hike, as the interest rates on their assets tend to be fixed for a longer period than those on their liabilities. in view of the interest rate risks taken and the now extremely low provisions in the swiss banking sector, the negative consequences of an unexpectedly sharp interest rate increase could be relatively far - reaching. the swiss banking sector should nevertheless have sufficient capital to bear up, even under such circumstances. hedge funds might pose an indirect threat to stability in that their failure affects systemically important banks. in our opinion, this is an unlikely scenario, however. hedge fund risk management at swiss big banks is adequate. the sfbc supervises the big banks ’ hedge fund activities. their exposure to hedge