The first lesson is to perform a thorough due diligence to clarify the extent of the problem in the troubled bank. But, in line with my previous principle, ideally you need to do this fast. Once you have a firm grasp of the bank’s difficulties, its time to carefully assess your support options. This assessment will, of course, include direct costs, but indirect consequences for the financial markets and the overall economy should also be taken into account. The second lesson is to opt for the least-cost solution. This may sound obvious, but many examples show that the lesson is not always heeded by decision-makers. In some cases, a least-cost solution means a state guarantee against losses on assets or a funding guarantee. But when that does not suffice, brokering a private solution – such as a takeover from another, sounder bank – is another option. This usually also includes some elements of guarantee in order to sweeten the deal for the acquiring bank. But guarantees may skew the incentive, so you need to tread carefully. Such skewed incentives are, in fact, good examples of the indirect costs you need to weigh in your assessment of alternative solutions. If neither of these solutions is possible, you are simply left with one single option – injecting capital into the bank. Textbooks in economics typically describe the functioning of central banks as lenders of last resort.
At the present point in time, however, we know neither if nor when such an accession scenario will become a reality. But even in the event that accession negotiations with the EU were started relatively soon, for example as early as 2008, and proceeded rather swiftly, transition periods would still apply. Even if such negotiations were concluded as early as 2011, for example, and if they entailed the adoption of the euro, Swiss banknotes would remain in circulation at least until 2015. The National Bank is thus compelled to tackle the development of new banknotes as a precautionary measure. This step has become necessary because of the development of new technologies and the typically high demands on the design quality of Swiss banknotes. Both aspects necessitate an adequate preparation period. Our current decision to intensify the preliminary work already under way was decisively influenced by the awareness that the work can be halted at any time, whereas it is impossible to initiate it or catch up on it within a short period. The National Bank's decision must, therefore, not be mistaken for a statement on its European policy; it is solely a precautionary measure. Banknote security With progress being made in counterfeiting technology, a note-issuing bank, which has to ensure the security of its banknotes, must always strive to maintain a technological advantage over counterfeiters, or copy machines and scanners.