philipp hildebrand : current state of the financial system in switzerland introductory remarks by mr philipp hildebrand, vice - chairman of the governing board of the swiss national bank, at the half - yearly media news conference, berne, 14 june 2007. * * * i would like to use today ’ s publication of our financial stability report as an opportunity to share some thoughts with you on the current situation of the financial system. i will start with the most important message – the swiss banking sector and the financial system in general are in very good shape at the moment. based on our analysis, the outlook for the future is also essentially positive. as stated in our report, the favourable situation in the swiss banking sector comes as no real surprise. developments in the economy and the financial markets in recent years have been very positive, both in switzerland and abroad. although economic growth has been strong, it has had practically no impact on inflation to date. the credit standing of borrowers remained high. in addition, despite repeated, significant short - term price corrections – as was the case last week – the stock markets rose sharply overall in an environment of low volatility. how can these positive developments be explained? and are there any risks involved – in particular for the stability of the swiss financial sector? the good performance is not solely attributable to the favourable economic situation. structural aspects have also played a role. with that i mean first and foremost the increased level of efficiency that has been achieved in the financial system in the past few years. this rise in efficiency can be ascribed to the innovativeness of financial markets. new financial instruments, such as credit derivatives, enable banks to separate their credit risk and transfer it either completely or partially. this facilitates a better distribution of credit risk in the financial system and means that the risk is borne by those who want to and are able to bear it. the improved efficiency has resulted in a reduction in the financing costs of companies and households. lower financing costs help the economy and stock markets to achieve greater growth. the increased efficiency also appears to have improved the ability of global financial markets to absorb shocks. the downgrading of general motors ’ credit rating in 2005, for instance, or the major losses suffered by the hedge fund amaranth last year had no lasting impact on stock and credit markets. all in all, global financial markets are currently better able to absorb shocks, at least small to mediumsized ones. accordingly, serious turbulence in the financial system

their risk positions and implemented key organisational measures for crisis management. the resilience of domestically focused banks is also good overall. thus, the regulations in place are particularly beneficial in the current environment given the high levels of uncertainty caused by the coronavirus crisis. at the same time, by focusing on the key aspects of capital, liquidity and resolution, regulations in switzerland are typically lean. this is because we believe it is important that market players in this country should be subject to as few constraints as possible regarding their activities and their business model. solid currency and price stability another pillar of a stable and attractive financial centre is a reliable currency. a reliable currency is one that holds its value over time, thereby ensuring price stability. cf. economic impact of the swiss financial sector, bak economics, 2019. page 3 / 5 our country has one of the most solid currencies in the world, namely the swiss franc. no other currency has retained its value so well since the outbreak of the first world war. nor has any other country kept average inflation lower than switzerland. but there is another side to this coin. in times of high uncertainty, the swiss franc tends to appreciate strongly, putting the economy under pressure and jeopardising price stability. we have witnessed this again recently. as a result, the snb has been faced with the challenge of using its monetary policy to guarantee price stability in switzerland. with the negative interest rate and our willingness to intervene in the foreign exchange market as necessary, we are able to counteract the attractiveness of swiss franc investments. our goal here is always to ensure appropriate monetary conditions in switzerland. in general, an overvalued swiss franc can pose a problem for the financial industry too. this is especially true for the important business of wealth management, where returns mainly accrue in foreign currencies, while costs are generally incurred in swiss francs. we are, of course, also aware of the challenge that the negative interest rate poses to the financial sector. we have therefore reduced the burden it places on the swiss banking system to the level necessary for the implementation of monetary policy. once again, i must also stress that the low interest rate environment is a global phenomenon with structural causes. this is unfortunately not something that switzerland can escape. political and institutional framework a further prerequisite for swiss financial service providers to compete on an international level is a sound political and institutional framework. switzerland has long had stable political relations, legal certainty