For instance, a large proportion of new  2  BIS central bankers’ speeches  mortgages granted for owner-occupied residential property still have a loan-to-value ratio of over 80%. Furthermore, the share of new loans with stretched affordability has also remained at a high level. At the same time, the interest rate margin of domestically focused banks narrowed further in 2012, while interest rate risk remained historically high. In view of the persistently low level of interest rates, there is the risk that, despite the measures already implemented, imbalances on the Swiss mortgage and real estate markets will continue to build up. This would increase both the likelihood and the consequences of a price correction in the medium term. Such a price correction could be triggered, for example, by a sharp increase in interest rates. Against this background, domestically focused banks should therefore continue to ensure that their resilience is sufficiently high, irrespective of the regulatory requirements, and make adjustments where necessary. They should be able to maintain their economically important functions, even if real estate prices were to fall sharply and interest rates were to simultaneously rise. In particular, domestically focused banks should make sure that the currently high direct interest rate risk is assessed and managed using conservative assumptions. In this context, the assumptions applied by banks with regard to savings and sight deposits are especially important. In an environment of historically low interest rates, these deposits have proven to be very stable sources of financing in recent years.
22 The more worrying possibility is that the duration of time spent away from the zero bound will be considerably shorter than the average remaining duration of assets on the central banks’ balance sheet after moving away from the zero bound. Such a scenario seems to make the objective of a lean balance sheet difficult to achieve and raises a number of important questions we should think about carefully. For example, is there a size of the central bank’s balance sheet beyond which further asset purchases become difficult or perhaps less  20  Ulrich also spends considerable time discussing market neutrality and its implications for the assets central banks should hold against currency. As he notes, there is a large difference in approach between the Federal Reserve and the Bundesbank in this regard. 21  A central bank that does not hold the assets it has purchased as long as market participants anticipate could lose credibility, making future asset purchases less effective. 22  In 2006, the Bank of Japan ended its Quantitative Easing Policy and returned to a lean balance sheet within a few months. This speedy return was facilitated by the short duration of the assets on their balance sheet. Of course, their motivation for such a speedy return was to reduce reserves quickly to regain control of overnight rates. This motivation no longer seems necessary, at least in the U.S., given the Fed’s successful liftoff. 6  BIS central bankers’ speeches  effective?