institutions, a resilient economy, and a first - class financial sector. my first chart shows the interest rates of german and swiss ten - year government bonds. the orange area indicates the interest rate differential. as central banks around the world fought to mitigate the worst effects of the global financial crisis, short - term interest rates in many advanced economies fell towards zero. importantly, foreign interest rates, including those in germany, have fallen more sharply than those in switzerland. as a result, switzerland ’ s interest rate differential had practically disappeared, making swiss franc investments more attractive than comparable investments in other currencies. by lowering the interest rate on sight deposits into negative territory, the snb restored the traditional interest rate differential to more normal levels, as illustrated by the orange area in the chart. the snb ’ s willingness to intervene in foreign exchange markets a higher interest rate differential reduces the relative attractiveness of the swiss franc. however, financial markets may be exposed to a sudden increase in volatility, which could lead to a sharp rise in the demand for swiss francs. this is where our willingness to intervene in the foreign exchange market plays a crucial role in stabilising the markets. for example, this summer, when the greek government announced a referendum on the international bailout programme, we intervened in the forex market at a time of great market volatility and global uncertainty. this willingness to intervene in the forex market as required is a key pillar of our monetary policy. the size of the snb ’ s balance sheet reflects our monetary policy measures. one consequence of a larger balance sheet is larger fluctuations in the financial results. in the first three quarters of this year, the snb incurred a provisional loss of chf 34 billion, predominantly reflecting valuation effects following the discontinuation of the minimum exchange rate. this is shown in chart 2. it is still too early to draw conclusions for the 2015 year - end result, particularly in the current volatile international environment. let me be clear, however : it is not the purpose of the snb to generate and distribute profits. instead, the snb ’ s main concern is to conduct a monetary policy that serves the interests of the country as a whole. our monetary policy operations have a direct impact on the snb ’ s balance sheet, meaning that substantial losses may occur in individual years. significantly, bis central bankers ’ speeches however, in the long term, our financial results should be positive, thanks to our

monopoly on creating banknotes and sight deposits, which ensures low funding costs. the swiss franc since the discontinuation of the minimum exchange rate our two - pronged monetary policy is proving effective in reducing the relative attractiveness of the swiss franc. after the sharp appreciation immediately following the discontinuation of the minimum exchange rate, the franc has weakened steadily against the euro, despite intermittent bouts of heightened financial market volatility during the summer. however, the swiss franc remains significantly overvalued. for example, the real effective exchange rate – the swiss franc ’ s exchange rate against a basket of currencies of our main trading partners – is still around 15 % above its long - term average, compared to less than 10 % at the end of 2014. the situation on the foreign exchange market has not yet normalised. chart 3 shows that private capital outflows, which have traditionally balanced switzerland ’ s structural current account surpluses, have turned into net inflows since the global financial crisis. changing investor preferences are behind this reversal of capital flows. while global economic conditions have improved, substantial uncertainty remains, causing some investors to seek the relative safety of the swiss franc. this also applies to domestic investors, including large institutional investors, which have partly repatriated their assets and investment returns. until investor preferences normalise, the franc is likely to remain under pressure. the second quarter of 2015 suggests a return to net capital outflows – a development undoubtedly supported by the negative interest rate. however, it is too early to say whether this is the beginning of a new trend. transmission of the negative interest rate to financial markets this brings me to the question of how the negative interest rate has been transmitted to the different segments of the swiss financial market. with regard to money and capital markets, our experience so far shows that the negative interest rate has worked remarkably well. the entire term structure of interest rates has shifted downwards without generating market disruptions. this is illustrated in chart 4. after an initial undershooting, the swiss franc three - month libor levelled off in the middle of the snb ’ s target range of – 1. 25 % to – 0. 25 %. other money market rates followed suit, leaving spreads between the different money market rates more or less unchanged. from the money market, the negative interest rate worked its way to the capital markets. government bond yields fell across the entire yield curve, with short