By combining these two instruments, the SNB is able to determine the volume of liquidity it wants to drain from the system, thereby influencing the three-month Libor. The SNB continues to use a three-month Libor target range as its reference band for monetary policy. The use of SNB Bills and reverse repos The SNB has been issuing SNB Bills since October 2008. At beginning of this month, a secondary market for buying and selling these short-term debt certificates was established. This secondary market improves market liquidity. SNB Bills have other advantages. First, their flexible terms can be adapted to the monetary policy objectives. Second, they permit greater flexibility and can be issued at high volumes. The SNB has been stepping up the issuance of SNB Bills since March 2010. It currently offers SNB bills with terms ranging from one week to three months. The total amount of SNB Bills outstanding last week amounted to about CHF 80 billion. This made it possible to reduce sight deposits to around CHF 70 billion. SNB Bills and reverse repos are characterised by their extraordinary flexibility, allowing for an efficient implementation of monetary strategy that is fully compatible with the monetary policy concept that has been proven and tested for several years now. In employing these instruments, the SNB continues to operate in an environment that is both familiar to and stable for its different partners. It is nevertheless ready to adjust its monetary policy instruments quickly, should this be required by developments in the financial markets.
Hence, we are likewise engaged in a degree of “soulsearching” on the nature of financial risk and how it might best be managed and how the management of that risk might best be regulated. And we certainly have “bought-in” to the global regulatory reform agenda spurred by the Global Financial Crisis. Clearly Asian banking systems and Asian markets do not operate in isolation from global markets and hence, we are all in this together! 4. With this in mind, I would like to take this opportunity to pose a couple of questions, the answers to which would have fundamental relevance to the nature and shape of the global financial system going forward – a. To what extent is the mainstream thinking, that financial or systemic risks can be assessed and forecast through the use of the financial models that have been developed in the last two decades, still valid? b. The financial markets have become very complex and, as we now know, have generated huge risks for the global financial system. Is the current international effort on regulatory reform adequate in addressing the risks arising from this complexity? and  c.  The Basle Committee on Banking Supervision is undertaking major reform in upgrading global standards on the quality and quantity of the capital, and introducing global standards on the liquidity that banks have to hold in order to improve their resilience to risks and shocks. Some countries have already implemented these standards but some advanced economies have not yet done so.