The Federal Act on Currency and Payment Instruments stipulates that the money issued by the SNB is legal tender in Switzerland and that the Swiss franc, which is divided into 100 centimes, is the Swiss currency unit. 3 Central bank money and its unit of account thus form the anchor of our monetary system. The SNB’s money defines the value and characteristics of our currency and thus also provides the basis for bank money. Bank deposits are not legal tender, however. They are instead much more a private claim against a bank. On demand, these claims can be exchanged one-to-one for central bank money, i.e. banknotes in the case of non-banks. Economic agents are prepared to hold bank deposits instead of central bank money as long as they have confidence in the bank’s ability to pay and as long as the bank deposits offer them added value compared with central bank money. For instance, bank deposits facilitate the settlement of transactions – most of us would probably find it highly impracticable if wages and rent had to be settled in cash, for example. Bank deposits also offer protection against theft and are often a better means of preserving value than central bank money in that they normally generate a return. However, they do entail a certain degree of credit risk. In Switzerland, bank deposits account for more than 90% of the money held in Swiss francs by households and companies, with less than 10% being held in banknotes.
The increase in margins may reflect banks’ efforts to build up their capital. Household debt is rising in Norway, but household income is growing at a solid pace. Given the present economic situation, households can tolerate higher interest rate margins in the  4  BIS central bankers’ speeches  banking system. Banks’ owners must also make a contribution, which they can do by participating in equity issues or by accepting that a smaller share of profits is distributed as dividends. In addition to raising more capital, banks must base their lending on more stable funding sources. Improved capital adequacy and more stable funding will be an advantage for banks, and not a disadvantage, in an environment of intensified global competition. Although growth in our part of the world is weak and real interest rates are low, many banks are still operating with high return targets, which could lead to excessive short-term risk taking. Banks and their owners should accept that return on equity will be lower, but also safer, in the years ahead. A more robust financial system will benefit us all. The forthcoming regulatory framework for banks in the EEA includes a countercyclical buffer – a capital requirement that can be increased in upturns and turned off in downturns. When banks are required to build up an additional buffer, they are better equipped to cope with periods of rising losses. Banks will be less likely to reduce lending in order to comply with the minimum capital requirements.