However, we cannot rule out a significantly deeper and longer-lasting recession than that forecast in the basis scenario. In this adverse scenario of a deep and long-lasting recession, large losses would be possible for banks with a domestic business focus as well as for big banks. Such losses might lead to a depletion of a substantial share of the banks’ current capital reserves. This might in turn impair market confidence in their soundness. Given this risk potential, it is therefore essential that the big banks take all the necessary measures to ensure their resilience to any further significant deterioration in conditions. These measures include another reduction in their risk positions, a further strengthening of their capital base, the preservation of an adequate liquidity cushion and the alignment of their cost structure with the changed market environment. The opportunity offered by the somewhat calmer environment at present should be used to take these measures. The SNB and FINMA will monitor developments in these areas closely. In this respect, the SNB explicitly welcomes the fact that, at their last General Meetings, the big bank shareholders agreed to the creation of authorised capital. This allows the big banks to react appropriately and flexibly to market developments. Regulatory agenda However, if the stability of the financial system is to be increased in the medium and longer term, the authorities themselves face challenges, and not just the banks. Intensive efforts are currently going into the development of appropriate solutions, both at the international level and in Switzerland.
Philipp Hildebrand: Current state of the financial system in Switzerland Introductory remarks by Mr Philipp Hildebrand, Vice-Chairman of the Governing Board of the Swiss National Bank, at the half-yearly media news conference, Berne, 20 June 2009. *  *  *  Introduction This time last year we reported that the overall market environment had calmed somewhat. However, we also stressed that it was too early to sound the all-clear, and that there was considerable uncertainty about the future development of the crisis. Our concerns at that time proved more than well-founded. Indeed, the actual events outstripped our expectations. If I may, I will start with my conclusion: the state of the Swiss and international financial system is – and remains – vulnerable overall. Consequently, we are still maintaining close contact with the big banks and with Swiss and foreign authorities, and are monitoring further developments with great attention. In addition we are continuing our intensive efforts at national and international level to improve the regulatory framework. Given the scale of the crisis, the Swiss National Bank (SNB) is convinced that although the measures taken so far in this area are heading in the right direction, some of them do not yet go far enough. I will therefore begin by briefly assessing the situation of the financial system, and then present the issues to which the SNB attaches medium to long-term priority with regard to reform of the banking sector operating environment. In the short term, however, the main focus is on overcoming the crisis.