capital requirements – including a floor for model - based rwa – and leverage ratio requirements should complement each other. risk - weighted requirements should guide economic decisions at the margin, while the leverage ratio should serve as a backstop. yet, until the measures to resolve the rwa problem take effect, it is prudent to give a greater weighting to the leverage ratio when assessing the big banks ’ resilience. indeed, analysts increasingly pay attention to the leverage ratio when assessing and comparing banks. domestically focused commercial banks increased mortgage exposure, capital situation stable i would now like to turn to the domestically focused commercial banks. in 2014, these banks further increased their exposure to the swiss mortgage and residential real estate markets. while the share of new loans with high loan - to - income ratios – a measure of affordability risk – remained persistently high, mortgage lending growth and the share of new mortgage loans with a high loan - to - value ratio decreased. hence, the increase in exposure was lower than in previous years. with respect to bank capitalisation, the situation remained largely unchanged in 2014. first, the domestically focused commercial banks ’ leverage ratios remained stable at high levels by historical standards. second, these banks ’ risk - weighted capital ratios increased slightly and are significantly above regulatory minimum requirements overall. furthermore, stress test results suggest that most domestically focused banks should be able to absorb estimated losses without seeing their capitalisation fall below the regulatory minimum. nevertheless, under the most relevant adverse scenarios for these banks, the losses would deplete a large proportion of their surplus capital. experience in switzerland in the 1990s, as in other countries, suggests that this would lead to a general weakening of the banking sector and significantly affect banks ’ ability to lend, with negative and lasting repercussions for the real economy. the stress test results highlight the importance of banks holding significant capital surpluses relative to the regulatory minimum requirements. the activation of the countercyclical capital buffer in 2013 and its increase in 2014 has made a significant contribution in this respect. bis central bankers ’ speeches risk of renewed increase in imbalances on mortgage and real estate markets overall, imbalances on the mortgage and residential real estate markets have remained broadly unchanged since the last financial stability report. from a financial stability perspective, this is a positive development. however, it is still too early to give the all - clear. on the one hand, imbalances remain at a high level and have not yet started to decline. on the

the new european currency would destabilize the swiss franc. in the past, the swiss franc, along with the german mark, played the role of a safe haven currency whenever monetary crises occurred. with the disappearance of the german currency, the swiss franc would find itself first in line of fire in case of a dollar crisis, for example, or even worse, in case of doubts about the stability of the european currency. b ) second, we risked seeing the euro being increasingly used as a means of payment in switzerland. as the common currency was about to become the main unit of account for our exports, we feared that domestic firms might adopt the euro as well, so as to minimize exchange rate risks. some were even considering wages being paid in euro. if use of the franc were to be crowded out by the euro, the swiss national bank would have had little leverage left to influence monetary conditions in switzerland. it would become a sort of paper tiger! c ) third, even short of a full “ euro - ization ” of the swiss economy, we feared the loss of our monetary policy autonomy. given the importance of the common currency for the swiss economy, what else could the swiss national bank do other than follow the european central bank ’ s policy and de facto integrate the franc into the euro zone? a gradually shrinking interest - rate differential between euro and swiss franc investments as well as a loss in monetary autonomy would have resulted. how does our recent experience relate to these concerns? 3. our experience as an independent monetary entity a ) the euro / swiss franc relationship our fears of a euro destabilizing the swiss franc did not materialize. relative to the euro, and since its introduction, the franc has been fluctuating in a relatively narrow band of plus or minus 5 percent, about four times less than against the dollar during the same period. the swiss franc appears now to be less affected by exchange rate shocks and more shielded from speculative movements. in the past, the franc was overreacting to the dollar ’ s fluctuations, so that the pain of an appreciation of our currency relative to the greenback was exacerbated by a simultaneous appreciation of the swiss franc relative to the german mark. this double whammy effect, attributed to the narrowness of the swiss franc market, was highly penalizing for our export sector. since the introduction of the euro however, this pattern is no longer observed.