And perhaps, most worryingly, the momentum for reform appears to have slowed, partly because markets have stabilised, partly because the public is losing interest and partly because, as Jerry Corrigan recently said, “the subject matter of reform is so very complex and often controversial.” 6 In view of the complexity of the issue, allow me to lay out the regulatory reform priorities which the Swiss National Bank (SNB) believes we must focus on in our efforts to build a more robust financial system for the future. Fully in line with proposals by the FSB and the decisions already taken by the G20 leaders, we must pursue a dual-track approach to reform, combining preventive measures and resolution measures: The preventive measures aim at reducing the probability of bank failures and systemic crises. Note that I deliberately use the word “reduce”. Eliminating all instability would be neither feasible nor desirable. The resolution measures aim at reducing the negative consequences in the event that failures or systemic crises occur – despite hopefully greater resilience in the future. In what follows, it is useful to bear in mind the extraordinary situation we face here in Switzerland. In international comparison, our banking sector is very large relative to our economy. Currently, total assets of the Swiss banking sector exceed seven times GDP. Furthermore, the Swiss banking sector is highly concentrated. Based on total assets, the two big banks, UBS and Credit Suisse, have a market share of more than two-thirds.
For how can we justify the costs of these efforts, which will have to be borne for at least a generation, without fundamentally addressing the flaws that got us into this terrible crisis in the first place? Ladies and Gentlemen, there are many areas in financial regulation that can and should be improved. Given what is at stake, there is a need to prioritise. I have attempted to lay out to you today where the SNB puts those priorities and where it will focus its greatest efforts in the months and years to come. Together with FINMA, it is our duty to provide robust analysis and to issue sound recommendations that will help put our financial system on a more sustainable foundation. In certain areas, like capital requirements, regulators can issue – and have issued – decrees intended to strengthen the resilience of the financial system. With respect to the “too big to fail” problem, political decisions are required. The topic is crucial. The consequences of not addressing it adequately could be severe in the event of a future crisis. Politicians need to become acquainted with and get involved in this matter. The sooner, the better! 17  17  The Swiss government has recently mandated a group of experts to make proposals to limit the risk associated with large firms. 8  BIS Review 145/2009