They thereby trigger a payment that reduces their deposits while increasing the deposits on the payment recipient’s account. By far the most common form of loan in Switzerland is a mortgage. When a mortgage is taken out for the purchase of a house or an apartment, the deposit does not normally even appear on the borrower’s account, since the bank remits the loan amount directly to the seller of the house or apartment in exchange for the mortgage certificate. To execute the payment, the bank needs to have sight deposits with the SNB. If it holds enough liquidity in the form of central bank money, the payment can be made without delay. If not, the bank needs to obtain liquidity on the interbank market or via credit facilities at the SNB, which only works if the bank has sufficient collateral in the form of securities or if it is prepared to pay a premium. Our example illustrates the following key points: An individual commercial bank cannot use the granting of loans to ensure a lasting increase in the deposits it holds. Due to payment transfers, the deposit created by a loan flows out and disappears from the books of the lending bank. For the banking system as a whole, however, things look different. The payment transfer creates a new deposit at another bank. While the total volume of central bank money remains unchanged, lending by an individual bank increases deposits in the banking system and hence also the overall money supply.
The mood is to continue cautiously down that path, but to emphasise the need, not only for sound macro-economic policies, which everyone accepts as a sine qua non, but also for steps to accompany capital account liberalisation designed to reduce the risks of volatility. These relate in part to the process of capital account liberalisation, where there is now a good deal more stress on ‘sequencing’ - that is on liberalising potentially more stable, longer-term, capital inflows initially, rather than short-term borrowing denominated in foreign currency. BIS Review 49/1998  -4-  But they relate particularly to three key conditions for living with free capital movements. The first is “transparency”. In a broad sense a need for greater transparency is recognised in relation to public policy, to the relationship between the public and private sectors, to corporate governance, accounting standards, and so on. In a narrower sense there is seen to be a need for more reliable, and greater and more timely disclosure of, financial information generally, at the level of individual borrowing entities, but especially also in relation to countries’ true foreign exchange short-term asset and liability positions. This is especially important in relation to the foreign currency liquidity position of the monetary authorities and of the banking system.