; it also explains why the subsequent crisis turned into an international financial market event and then into a global economic crisis! a quick back - of - the - envelope calculation comes up with a figure for lost flow income of at least 10 % of world gdp. we have escaped a new great depression, but in the end worldwide income losses have probably exceeded the income losses associated with the great depression. since the last money market event a year ago, the international financial system has emerged from the brink of collapse, financial conditions have improved on a broad front and a hesitant economic recovery has been initiated. by and large, the trough on the financial front was reached in q1 2009 while the economic low point was probably attained one or two quarters later. exceptional fiscal and monetary policy measures contributed without doubt to these developments. representative charts for last year show a strong recovery in equity markets, a return to calmer money markets, a decrease in credit spreads, and a return to source : fed flow of funds statistics, datastream. source : bloomberg. more activity in corporate bond issuances. noteworthy is the fact that, in contrast to developments in other countries, there was no credit crunch in switzerland. in our country, as elsewhere, a very expansionary monetary policy has been a key element of the response to the crisis. from october 2008 to march 2009, the snb carried out a massive reduction in the libor target range, pursuing a de facto zero interest rate policy. as of march 2009, the snb adopted measures termed “ unconventional ” in order to loosen the monetary reins further when there was no more room for interest rate reduction. these measures took three main distinct forms : longer - term repo transactions, purchases of bonds issued by domestic borrowers, and purchases of foreign currencies. today, viewed from an international perspective, the swiss economy is in a relatively favourable position. gdp has been growing for two consecutive quarters. inflation is back in positive territory but without excessive upward pressure. fears of deflation, which constituted one of the major risks of the past year, have not yet disappeared but are receding. employment is no longer falling and unemployment may be stabilising. the swiss export sector was strongly hit by the crisis and is still fragile. economic activity has been sustained by domestic consumption ( both private and public ) and by construction activity. last year ’ s gdp growth, at – 1. 5 %, constituted the worst performance for the swiss economy since 1975. yet this figure is considerably

thomas jordan : real estate, mortgages and monetary policy speech by mr thomas jordan, member of the governing board of the swiss national bank, at the iazi, schweizer immobilienkongress 2009, zurich, 10 november 2009. the complete speech can be found in german on the swiss national bank ’ s website ( www. snb. ch ). * * * there is a close interrelationship between real estate, mortgages and monetary policy. on the one hand, monetary policy impacts on the real estate and mortgage market. when the central bank reduces interest rates, this eases the burden on household and company budgets and fosters the demand for real estate. on the other hand, monetary policy also takes account of developments on the real estate market because these can affect economic growth, inflation and financial stability. once again, the current financial crisis has thrown these interrelationships into sharp relief. problems in a number of mortgage and real estate markets – in particular in the us and the uk – triggered the financial crisis and plunged the global financial system into a systemic crisis. this impacted on switzerland ’ s financial stability and made it necessary to create the stabilisationfund for the transfer of illiquid ubs assets. the swiss real estate and mortgage market played a positive role in various measures adopted by the snb to handle the financial crisis. swiss mortgages played a role in securing swiss financial stability in the limmat pfandbrief transactions, whereby big banks improved their refinancing situation by issuing covered bonds. consequently, switzerland – unlike other countries – was able to avoid introducing state - guaranteed bonds. with the drastic reduction in key rates and the subsequent decline in mortgage rates, the burden on households and companies was eased. in this way, the severity of the recession was somewhat alleviated and the risks of deflation reduced. however, the interest rate is now at a historic low and this means medium - term risks for the swiss real estate market and financial stability. experience shows that periods of low interest rates provide scope for excesses on the mortgage and real estate market. consequently, in the current environment in particular, attention should be given to ensuring that past mistakes are not repeated. caution must remain the watchword when granting loans.