Jean-Pierre Danthine: Presentation of the Swiss National Bank’s Financial Stability Report Introductory remarks by Mr Jean-Pierre Danthine, Vice Chairman of the Governing Board of the Swiss National Bank, at the Media News Conference of the Swiss National Bank, Berne, 18 June 2015. *  *  *  As my colleague Thomas Jordan has explained, global economic growth in the first quarter of 2015 was below expectations. However, over the last 12 months, we have seen an improvement in international economic and financial conditions, although substantial risks remain. The domestic environment has become more challenging due to the strong appreciation of the Swiss franc that followed the discontinuation of the minimum exchange rate in January 2015. Against this background, I would like to examine the situation at Swiss banks from a financial stability perspective, looking first at the big banks and then moving on to a discussion of domestically focused banks. A more detailed assessment of the situation can be found in the latest Financial Stability Report published today. Big banks Further improving resilience Over the past year, the Swiss big banks have continued to improve their capital situation, albeit at a slower pace than the year before. They already meet most of the requirements which will apply from 2019. While acknowledging the progress made, the SNB recommends that the big banks do not lose momentum in their efforts to improve their resilience. This is particularly warranted with regard to the leverage ratio.
Resilience needs to be further improved for three reasons: First, the big banks’ loss potential relative to their capitalisation continues to be substantial. Second, while the Swiss big banks’ risk-weighted capital ratios are above the average for large globally active banks, the same cannot yet be said for their leverage ratios. Third, it can be expected that regulatory developments at both international and national level will result in increased capital requirements. 1 The Swiss big banks should prepare for these developments. RWA problem identified, but not yet resolved In the capital regulation of banks, risk-weighted assets (RWA) play a key role. As mentioned in previous Financial Stability Reports, both markets’ and authorities’ confidence in RWA calculated using banks’ internal models has steadily declined. A number of studies have shown that, in some instances, model-based RWA do not properly reflect a bank’s economic risks.2 As a consequence, capital ratios calculated using model-based RWA may overstate the true level of resilience. 1  Based on the review of the Swiss “too big to fail” regulations by the group of experts on the further development of the financial market strategy (Brunetti group of experts), the Federal Council has instructed the Federal Department of Finance to prepare legal adjustments, which primarily concern more stringent capital requirements. Cf. media release of the Federal Council, 18 February 2015. 2  For instance, international studies have revealed significant differences in RWA between banks using the model-based approach.