While the future path  BIS central bankers’ speeches  5  of policy is not on a pre-set course and must remain data dependent, we will strive to be similarly effective in our communications going forward. As you know, we’ve taken a number of steps in recent years to increase transparency and improve our communications. This includes regular press conferences by the Fed chair following FOMC meetings; the publishing of growth, inflation, unemployment and federal funds rate projections by FOMC participants; a concerted attempt to lay out the guideposts that the FOMC will look at to assess progress toward our mandate; and an equally concerted attempt to lay out how our various policy tools―such as interest on reserves, overnight reverse repurchase (ON RRP) operations and reinvestment of principal payments from our asset holdings – will be used to pursue our objectives. We are also working to be better stewards in safeguarding financial stability. Simply put, we failed to act early enough and decisively enough to stem the credit excesses that spawned the financial crisis and Great Recession. The U.S. was not alone in this shortcoming, but, given our position in the global financial system, we should have done better. We’ve taken important steps through new legislative mandates and a broader effort to rethink our regulatory and supervisory framework. In particular, systemically important banking organizations must now hold capital and liquidity buffers that are better aligned with their risk profiles.
Thirdly, there is no indication – from our perspective – that the risks entered into in the banking industry have risen: market and interest rate risk have only increased slightly on an aggregate level, and credit risk even seems to have fallen. Consequently, the banking sector is in good shape at the moment. As far as prospects for the near future are concerned, we believe that the macroeconomic environment and financial market conditions pose no major threat to the stability of the Swiss banking system. The outlook for 2005 indicates that economic growth in most regions will only slow down at a moderate pace. In addition, the available indicators suggest that there is currently little risk of contagion effects causing a crisis in the Swiss banking sector. Nevertheless, there are still potential sources of risk. They pertain to credit risks in particular. Firstly, an unexpectedly sharp economic downturn could have a serious impact on the quality of the loan portfolios and the stock market. Secondly, should we witness a swift economic recovery, however, a sharp rise in the still very low interest rates could also result in a deterioration of the loan portfolio. This  is because the growing interest burden would suddenly put considerable pressure on households and companies with mortgages to pay off. Banks would also be directly affected by the steep interest rate hike, as the interest rates on their assets tend to be fixed for a longer period than those on their liabilities.