##uation of around 30 %. an econometric model ( red ), which explains current prices based on developments in gdp, housing stock and interest rates, shows an overvaluation of roughly 20 %. 10 finally, the ‘ user cost model ’ ( dark blue ) reveals a broad range of overvaluations, depending on different assumptions regarding future interest rate and rental developments. 11 assuming for example that real mortgage interest rates will return to their historical average of 2. 6 % over the long term, the resulting overvaluation amounts to roughly 30 %. if, by contrast, the assumption is a real mortgage interest rate of 1 % over the long term, the overvaluation decreases to around 5 %. high vulnerabilities pose risks to financial stability... to summarise, we are currently seeing clear signs of unsustainable mortgage lending on the one hand and heightened risks of a price correction on the other. i would now like to use the example of an unexpected and rapid rise in interest rates to illustrate why these vulnerabilities can pose risks to financial stability. such a scenario could simultaneously lead to a materialisation of affordability risks and to valuation losses due to price corrections – two risks that can also be mutually reinforcing. first, let us consider the affordability risks. as shown on slide 4, these risks have been steadily growing over recent years and are currently at a high level. this means that a substantial number of borrowers could experience payment difficulties should interest rates go up, and this would have a negative impact on banks ’ credit portfolios. an abrupt interest rate hike could also lead to widespread price corrections on the real estate market. a large proportion of mortgage loans in banks ’ portfolios have an ltv ratio of between 60 % and 80 %. a ratio in this range normally ensures that a bank would not incur a loss in the case of an individual borrower defaulting, as the mortgage loan is sufficiently covered by the value of the pledged property. however, a marked and widespread price correction on the swiss real estate market would reduce this security margin. even at an average price decline of 20 % to 30 %, we can expect a situation in which a substantial share of cf. cuestas, j. c., m. kukk and n. levenko ( 2021 ), misalignments in house prices and economic growth in europe, mimeo ; and muellbauer, j. ( 2018 ),

stability means that financial system participants, such as banks and financial market infrastructures, are able to perform their key functions and are resilient to shocks. these key functions include lending and payment transactions. our tasks have always required us to take an interest in and a shared responsibility for a stable financial system. 2 let me illustrate this by highlighting two points : first, a stable financial system is a prerequisite for us to be able to perform our core task, which is to conduct monetary policy. financial turbulence puts a strain on the real economy and is a threat to price stability. moreover, we are dependent on well - functioning banks and financial market infrastructures for the implementation of monetary policy operations. second, we have an important role to play in times of financial instability, namely that of lender of last resort. as such, we provide liquidity to financial institutions in financial distress. this emergency action sources : blick ( 6 july 2021 ), finanz und wirtschaft ( 21 july 2021 ), translated from the german. with a focus on switzerland, cf. birchler u. w., the national bank ’ s closer focus on the stability of the system, in : the swiss national bank 1907 – 2007. page 2 / 12 often comes with high risks for us and for the economy as a whole. these two points illustrate that it is in our interest to identify risks to financial stability as early as possible and to contain them through preventive measures. the snb ’ s mandate regarding financial stability was explicitly defined in the comprehensive revision of the national bank act ( nba ) in 2003. in accordance with art. 5 nba, the snb is obliged to ensure price stability and, as part of this mandate, also to make a contribution to the stability of the financial system. by choosing the word ‘ contribution ’, legislators expressed the fact that financial stability is subordinated to the goals of monetary policy and that it is promoted not only by the snb, but also by other authorities. besides the snb, the swiss financial market supervisory authority ( finma ) and the federal council also contribute to financial stability in switzerland. whereas finma is responsible for supervising individual financial institutions, the snb monitors developments in the banking sector from the perspective of the system as a whole, i. e. from a macroprudential point of view. the federal council for its part is responsible for regulatory matters, for example regarding the amount of capital and liquidity reserves that banks must