level of the individual group entities. in this context, the federal council has announced that, during the first half of 2019, it will decide on the corresponding requirements for the highest operating unit of the big banks – i. e. the parent entity. third, credit suisse and ubs must further reduce the financial and operational dependencies within the group. domestically focused banks i would now like to turn to the domestically focused banks. here too, there has been little change since the financial stability report was published in june. mortgage and real estate markets remain the biggest source of risk. i would like to make two observations in this connection. first, the imbalances on the mortgage and real estate markets persist. both mortgage lending and prices for single - family homes and privately owned apartments have continued to rise at a moderate rate over recent months. and while prices for residential investment property have not increased any further, the risk of a price correction in this segment is particularly high. the renewed increase in vacancy rates indicates that the robust activity in rental apartment construction may have led to oversupply, exerting downward pressure on rental income and, in turn, on the prices of these properties. at the same time, initial yields on residential investment property, in other words the ratio of rental returns to transaction prices, are at historically low levels. in the event of an interest rate rise, initial yields on investment properties will also have to increase upon a change of ownership. this would place additional pressure on prices. second, the risk appetite of domestically focused banks remains high. this is partly due to the fact that interest rate margins of these banks fell further in the first half of 2018. as long as this pressure on margins persists, incentives for domestically focused banks to increase risktaking will remain substantial. the high risk appetite of the domestically focused banks is, for instance, evident from the fact that mortgage lending growth at these banks continued at a robust 4 %, whereas the market as a whole saw growth of around 3 %. at the same time, affordability risks, which these banks take on when granting new mortgage loans to finance residential investment properties, have risen once again over the course of the year. since many of these loans also carry considerable loan - to - value ( ltv ) risk, they would be particularly vulnerable in the case of a sharp increase in interest rates and a correction in real estate prices. page 2 / 3 berne, 13 december 2018 fritz zurbrugg news conference it is

important that banks are in a position to bear the risks they take on. in the snb ’ s opinion, this requirement is met by most domestically focused banks owing to their good capitalisation level. capitalisation levels appropriate to the exposures incurred need to be maintained in future, too. this is particularly relevant in view of the previously mentioned granting of mortgages with high affordability risks, which increases the banks ’ loss potential. given the risks i have just described, the snb continues to take the view that targeted measures in the area of residential investment property lending should be considered. such measures are currently being examined. in addition, the snb will continue to monitor developments on the mortgage and real estate markets closely, and regularly reassess the need for an adjustment of the countercyclical capital buffer. page 3 / 3