More recently the Fund adopted a set of criteria designed to limit the risk that the Fund would make largescale resources available too frequently and in conditions where they would be unlikely to contribute to a resolution of the crisis. These various reforms gave the Fund a substantially more effective insurance mechanism for emerging market economies than it had before. Building on this progress, I see the key elements of a credible insurance mechanism as including the following: •  Finance must be conditioned on a policy framework strong enough and timely enough to restore confidence. Fund resources can’t compensate for a lack of policy credibility, and lending official resources to fund an inadequate policy effort may make the situation worse. •  The scale of finance provided has to be calibrated to the need, and the needs can be substantial in today’s world. The Fund can only fill part of the gap, but it has to be able to fill a credible share of the gap if it is to play a successful part in catalyzing other resources to flow. •  Flexibility to structure programs appropriate to the circumstances and the borrower’s policy efforts is essential. The Fund needs to be able to substantially front-load financial packages, when this is warranted. Making available small tranches of resources over the life of a program does little to address the realities of open emerging market economies facing liquidity problems.
Thomas Jordan: Macroprudential instruments and balance sheet risks Introductory remarks by Mr Thomas Jordan, Vice-Chairman of the Governing Board of the Swiss National Bank, at the end-of-year media news conference, Zurich, 16 December 2010. *  *  *  In my following remarks, I will address two issues in depth. I will start by detailing the set of instruments which the Swiss National Bank (SNB) should have at its disposal for the prevention of financial crises. I will then take a look at the risks on our balance sheet. Macroprudential instruments at the SNB More than three years have passed since the outbreak of the international financial crisis. The crisis made two things very clear. First, the capital and liquidity buffers in the financial system were far too low. Second, systemic risks had been grossly underestimated prior to the crisis or had not even been identified. Almost nobody suspected that the risks were so closely interlinked, nor that problems in a small segment of the US mortgage market could rock the global financial system and the world economy. In order to make the financial system more resilient, one thing that needs to be done is to strengthen the capital and liquidity buffers. Significant progress has already been made in this regard with the approval of Basel III and the new “too big to fail” (TBTF) regulations. These measures should help ease the problems in connection with the TBTF issue significantly. But there will be other crises in the future, too.