I’ll highlight two areas where markets have evolved in ways that raise questions about their resilience, even if all the intermediaries are safe. They might mean investors aren’t able to take the liquidity of markets for granted if they adjust. In both cases, there is no proven problem for markets or the economy. Inquiries are, as the police like to say, ongoing. Through our market intelligence gathering, I’m pleased to say that market participants are helping with those inquiries. And I look forward to the contributions of this Centre too. i) (Mis) use of volatility measures  Against a backdrop of relatively stable markets, some investors may have developed an appetite for betting that a range of markets, including bond markets, will remain stable. 10  All speeches are available online at www.bankofengland.co.uk/speeches  10  That means selling options – effectively insurance against moves in market prices. A put option, for example, is insurance against falling prices. An investor who buys this insurance is guaranteed a sale price for the asset insured, regardless of what happens to the market. If prices are currently higher but then fall below the guaranteed price, an investor that wants to sell will incur some loss – think of this as the insurance excess – but the insurer will pay for the rest. If markets stay stable, as the insurer is betting they will, no payout is made and the insurance collects a premium. While markets are stable, it’s a nice little earner for the insurer.
Philipp Hildebrand: Key factors for the Swiss economy – financial market regulation in Switzerland Speech by Mr Philipp Hildebrand, Chairman of the Governing Board of the Swiss National Bank, Swiss Economic Forum, Interlaken, 4 June 2010. The complete speech can be found in German on the Swiss National Bank’s website. *  *  *  The financial system is the life blood of our economy. Key measures to increase the resilience of the financial system have already been implemented in Switzerland. However, they have not addressed the fundamental problem, which is that systemically important banks cannot at present be allowed to fail. The commission of experts set up by the government to examine ways of alleviating this problem published its interim report a few weeks ago. The report proposes measures in the areas of capital, liquidity and organisational structure. This approach is in line with the key points on the Financial Stability Board’s agenda. The interim report is an important milestone in the efforts to address the “too big to fail” issue. Naturally, we still face considerable challenges. Moreover, cross-border solutions are required for the “too big to fail” question. The commission’s proposals represent a constructive step towards global cooperation. If the key points on the Financial Stability Board’s agenda are not implemented in the major financial centres, we will ultimately be left empty handed. One of the few positive aspects of the financial crisis has been the unprecedented international collaboration to combat the crisis and the endeavours to cooperate internationally on regulatory reform.