It means in practice that the banks’ future  2 [5]  capital requirements must amount at least to a certain percentage of the capital requirements the banks would have if they instead used standard methods to calculate their capital requirements. Similar regulations already exist in the form of the old Basel I floor. The Basel Committee introduced the Basel I floor for the specific purpose of avoiding a situation where the banks’ capital requirements decline too much and too quickly when the Committee decided to introduce Basel II. The new regulations are not at all revolutionary in themselves, but focus on bringing the existing framework up-to-date. It is also reasonable to link together the standard methods and the internal models in this way, from both risk and competition perspectives. The fact that there is some relationship between standard methods and the banks’ own models ensures that the capital requirements do not differ too much. In addition to the floor regulations, the Basel committee will decide on the final form and calibration of the leverage ratio requirement. The Basel Committee is planning, as announced earlier, to introduce an international minimum requirement in the year 2018 of three per cent, and possibly somewhat higher for systemically-important institutions. Having a leverage ratio requirement is an important step forwards, as this gives us a commonly agreed highest level as to how much the banks can debt finance their operations , regardless of the level of risk in their operations.
Philipp Hildebrand: The Swiss National Bank’s ability to act in the crisis Summary of a speech by Mr Philipp Hildebrand, Vice-Chairman of the Governing Board of the Swiss National Bank, at the Executive MBA HSG, Universität St Gallen, St Gallen, 21 January 2009. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  The global financial system is in the midst of the biggest crisis of the postwar years. Above all, the crisis is the most complex of this period. Problems in the US sub-prime mortgage market led to the breakdown of both markets and general trust. In particular, the interbank market, the nerve centre of the financial markets, froze up for several months. Governments and central banks managed to prevent the financial system from collapsing. The interbank market has been revived and risk premia have come down from their former record levels. In the meantime, however, the financial crisis has worked its way through into the real economy, which is now moving into a sharp downturn. In order to fight the crisis, the central banks have lowered their key interest rates aggressively. The instrument of the Swiss National Bank (SNB), the repo rate, has practically reached zero. However, this certainly does not mean that the SNB is incapable of action. If needed, there are other options available. The National Bank can extend the terms of repo transactions or give consideration to the purchase of government and corporate bonds.