In my speech today, I would like to focus on the ongoing reforms aimed at enhancing the mechanisms with which authorities can handle problems in banks and reduce the potential impact of failures, should they occur. First, I will briefly recall the main shortcomings of the current resolution regimes. Second, I will consider the international, European and national initiatives to cope with the challenges. Finally, I would like to say a few words about the future path towards an optimal arrangement for cross-border resolution. The main shortcomings of the current frameworks During the current crisis we have seen several government-funded bailouts and one case where, in place of a bailout, a disorderly collapse occurred with widespread effects around the globe. There are multiple reasons why no better alternative between these two extreme solutions was available in these cases. First, letting financial institutions fail was often not a feasible alternative from a legal perspective. In a majority of countries, only normal corporate insolvency proceedings were – and in many countries, still are – available to banks. However, limiting credit and liquidity losses in the case of failure may not be effectively ensured by using these mechanisms, because they were not designed to take into account the special nature of credit institutions. Second, even if a well-designed special bank resolution or insolvency regime is in place in a particular country, this does not guarantee that cross-border banks can also be dealt with effectively.
Thomas Jordan: Real estate, mortgages and monetary policy Speech by Mr Thomas Jordan, Member of the Governing Board of the Swiss National Bank, at the IAZI, Schweizer Immobilienkongress 2009, Zurich, 10 November 2009. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  There is a close interrelationship between real estate, mortgages and monetary policy. On the one hand, monetary policy impacts on the real estate and mortgage market. When the central bank reduces interest rates, this eases the burden on household and company budgets and fosters the demand for real estate. On the other hand, monetary policy also takes account of developments on the real estate market because these can affect economic growth, inflation and financial stability. Once again, the current financial crisis has thrown these interrelationships into sharp relief. Problems in a number of mortgage and real estate markets – in particular in the US and the UK – triggered the financial crisis and plunged the global financial system into a systemic crisis. This impacted on Switzerland’s financial stability and made it necessary to create the StabilisationFund for the transfer of illiquid UBS assets. The Swiss real estate and mortgage market played a positive role in various measures adopted by the SNB to handle the financial crisis. Swiss mortgages played a role in securing Swiss financial stability in the Limmat Pfandbrief transactions, whereby big banks improved their refinancing situation by issuing covered bonds.