5  Moore’s Law refers to the observation by Intel co-founder Gordon Moore in 1965 that transistor density on integrated circuits had doubled every year since the integrated circuit was invented and the prediction that this would continue. BIS Review 95/2010  11  5. Explaining disaggregated returns to banking  A distinct, but complementary, explanation of high returns to banking is that they reflect structural features of the financial sector. For example, measures of market concentration are often used as a proxy for the degree of market power producers have over consumers. It is telling that measures of the concentration of the banking sector have increased dramatically over the course of the past decade, coincident with the rise in banking returns. Chart 35 plots the share of total bank assets of the largest three banks in the US since the 1930s. Having flat-lined up until the 1990s, the top 3 share has since roughly tripled. A similar trend is evident in the UK (where the share of the top 3 banks currently stands at above 50%) and globally (where the share of the top 3 has doubled over the past 10 years). At the same time, it is well known that market concentration need not signal a lack of competitiveness or efficiency within an industry or sector (Wood and Kabiri (2010)). Highly competitive industries can be concentrated and highly decentralised industries uncompetitive.
The SNB’s expansionary monetary policy contributed to the depreciation of the Swiss franc over the course of the year and thus also supported the economy. Inflation is currently negative, due to the appreciation of the Swiss franc following the discontinuation of the minimum exchange rate and to the reduction in commodity prices. We expect it to return to positive territory in 2017. We will keep our options open should other measures be necessary to fulfil our mandate. But, as always with monetary policy decisions, we need to carefully weigh up the pros and cons to serve the interests of the country as a whole. In the wake of the financial crisis and the use of unconventional measures, central banks have become the focus of intense public interest. Various reform proposals are being discussed and we welcome these public debates. New ideas need to be seriously considered and evaluated. The intentions behind the sovereign wealth fund and sovereign money projects are commendable. But, on closer examination, the drawbacks outweigh the benefits in both cases. Finally, on behalf too of my colleagues in the Governing Board, Fritz Zurbrügg and Andréa Maechler, I would like to take this opportunity to thank our employees for their hard work and dedication. We would also like to thank our shareholders for their solidarity with the SNB and for their loyal support.