Price stability vs. financial stability  NATIONAL BANK ACT Article 5: Tasks 1 The National Bank shall pursue a monetary policy serving the interests of the country as a whole. It shall ensure price stability. In so doing, it shall take due account of economic developments. Interest rate reduction  Credit growth  More investment & consumption  2 Within this framework, it shall have the following tasks:  … e. It shall contribute to the stability of the financial system.
Why do so many economic agents take excessive risks at the same time? Thus, the correction of excesses on the credit market leads not just to economic downturns but also often to sustained loss of growth potential. For this reason, all economic agents should have a strong interest in avoiding any excesses which could end in a crisis. Nevertheless, historical evidence shows that periods of excessive risk-taking by individuals, banks, companies or governments occur with quite alarming regularity. Why do we learn so little from experience? Let me say from the outset, there is no one single reason for the repeated excesses on the credit market. A number of closely related factors all play a role. In the following, I will be looking in more detail at three of these factors (cf. slide 10). First, a favourable macroeconomic environment drives the supply and demand of loans. Second, the rational reaction of individual lenders and borrowers to the favourable environment can lead to a build-up of systemic risks. And, third, distorted expectations of economic agents also play a role. 12 To illustrate these factors, I will use the example of the Swiss housing boom of the 1980s. Interestingly, analogous developments can be found in the lead-up to virtually every debt crisis. 13 Economic upturn, low interest rates and rising asset prices  Initially then, the macroeconomic environment plays a major role. Increased lending is often associated with an economic upturn.