Nonetheless, it is too early to sound the all-clear. The ongoing price corrections on the US real estate market will probably continue to put a strain on the US economy. Ultimately, this will spill over to countries outside the US, although according to our assessment the affects will be limited. Consequently, although the SNB expects a slowing in momentum in the coming quarters, it expects the decline in economic growth to be less pronounced than in the US. However, there is considerable uncertainty attached to the current forecast. This means that market participants, and in particular the banks, also need to take less favourable scenarios into account. A clear escalation of the crisis in the US real estate market would heavily depress economic growth in the US and this, in turn, would leave a more pronounced mark on Switzerland. Moreover, real estate prices have risen appreciably in recent years in the US, as in other countries. Price corrections can already be observed here and there in the real estate markets of other countries. Further developments of this kind cannot be ruled out. We do not see any greater risks for the Swiss real estate market at the present time. As already mentioned, the Swiss big banks have reduced some of their risk positions in recent months. However, they remain exposed with regard to international developments. So far, the financial market turmoil has mainly affected the trading portfolios of the big banks, and hardly any losses have been recorded in traditional lending business. This could change.
As clearly outlined in our Financial Stability Report, leverage at the Swiss big banks is very high, and since the mid-1990s, average indebtedness at the two big banks has risen from 90% to over 97%. That means over CHF 97 of borrowed capital for every CHF 3 of equity. This ratio is also very high by international standards. In terms of return on equity, high leverage may appear attractive. In terms of financial stability, however, it is also a source of risk. Thus, in the current crisis, losses arose on Swiss big bank risk positions which are relatively small in comparison to total assets. However, because leverage was high, in the case of UBS these losses destroyed almost half the bank’s equity. The two measures mentioned above have a complementary effect. The risk-based requirements ensure the best possible risk-sensitivity for capital adequacy purposes. Alongside this, a leverage ratio would guarantee a minimum safety buffer which does not depend on complex models. Thus, the leverage ratio would be a protection against unexpected shocks that are not sufficiently covered by the risk-weighted requirements. This limitation set on the degree of indebtedness would mean that capital requirements would increase for activities based on large amounts of borrowed funds, such as proprietary trading. In the US, banks have long been subject to a leverage ratio. They have to comply with a capital-to-assets ratio of at least 5% in order to be considered as well capitalised.