Jean-Pierre Danthine: Credit – is the sky the limit? Introductory remarks by Mr Jean-Pierre Danthine, Vice Chairman of the Governing Board of the Swiss National Bank, at the International Center for Monetary and Banking Studies, Geneva, 16 April 2013. *  *  *  I would like to thank Claudia Strub and Till Ebner for their very valuable support in drafting this speech and for the underlying analysis of the topic. I would also like to thank Robert Bichsel for his helpful comments. 1. Introduction  The Swiss Federal Council has recently decided to activate the countercyclical capital buffer (CCB) acting on a proposal by the Swiss National Bank (SNB). The key feature of this new tool is to counter the “pro-cyclical” behavior of financial institutions whose collective action can be a source of systemic risk. To this end it requires banks to temporarily increase the level of capital they must hold as a backing for mortgage loans on residential property. In doing this, Switzerland is one of the first countries to make effective use of a tool advocated by the international community as a means for preemptively dealing with cyclical risks to financial stability. What was the motivation for activating this instrument? The main goal of the CCB is to increase the resilience of financial institutions against the background of imbalances in the domestic mortgage credit and housing markets that have been building up gradually over the last several years.
If the individual members sent out different signals it was probably also difficult to distinguish a clear message from this "cacophony of voices", to quote Professor Blinder again. This type of problem seems rather unnecessary. A central bank should be able to be so clear with regard to its view of the future that there should be no need for loosely-grounded speculations and interpretations – it should not be necessary to be a Kremlinologist to interpret the Riksbank. We hope that we have solved this problem with our new way of working. A further weakness of the earlier signalling process concerned the responsibility the Riksbank has in its role as independent authority. It is a question of democracy. This responsibility includes, for instance, the fact that the general public must have good insight into the decision-making process – the decisions at the monetary policy meetings must be made in a correct manner. This is why minutes are taken at the monetary policy meetings and then published, and the chairman and deputy chairman of the General Council of the Riksbank have the right to attend the Executive Board meeting. There must be no doubt that the interest rate decisions are actually made at the monetary policy meetings and not at some other point in time – in some informal way that prevents insight. If the signalling prior to the meetings leads people to believe that the interest rate decisions have been made in advance of the meetings, then doubts may arise.